<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997 Commission file number 1-804
SEQUA CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 13-1885030
- ---------------------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) dentification No.)
200 Park Avenue, New York, New York 10166
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 986-5500
- -------------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------- ---------------------------
Class A Common Stock, no par value New York Stock Exchange
Class B Common Stock, no par value New York Stock Exchange
$5.00 Cumulative Convertible
Preferred Stock, $1.00 Par Value New York Stock Exchange
9-5/8% Senior Notes, Due
October 15, 1999 New York Stock Exchange
8-3/4% Senior Notes, Due
December 15, 2001 New York Stock Exchange
9-3/8% Senior Subordinated Notes,
Due December 15, 2003 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of registrant's voting stock (Common and Preferred)
held by nonaffiliates as of March 10, 1998 was $290,783,352
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock:
Class Outstanding at March 10, 1998
----- -----------------------------
Class A Common Stock, no par value 6,842,652
Class B Common Stock, no par value 3,329,780
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive proxy statement for its annual meeting of
stockholders scheduled to be held on May 7, 1998 are incorporated herein by
reference into Part III.
<PAGE>
SEQUA CORPORATION
FORM 10-K
* * * * * * *
PART I
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ITEM 1. BUSINESS
- -----------------
(a) General development of business. Sequa Corporation is a
--------------------------------
diversified industrial company that produces a broad range of
products through operating units in four industry segments:
Aerospace, Machinery and Metal Coatings, Specialty Chemicals, and
Other Products. Sequa Corporation, incorporated in 1929, is
hereinafter sometimes referred to as the "Registrant" and,
together with its consolidated subsidiaries, is hereinafter
sometimes referred to as the "Company" or "Sequa." Information
with respect to material acquisitions and dispositions is
included in Note 14 to the Consolidated Financial Statements on
pages 56 and 57 of this Annual Report on Form 10-K and is hereby
incorporated by reference.
(b) Financial information about industry segments. Segment
----------------------------------------------
information is included in Note 18 to the Consolidated Financial
Statements on page 60 of this Annual Report on Form 10-K and is
hereby incorporated by reference.
(c) Narrative description of business. The following is a
----------------------------------
narrative description of the business segments of Sequa:
Aerospace
- ---------
The Aerospace segment includes two operating units:
Chromalloy Gas Turbine and ARC Propulsion.
Chromalloy Gas Turbine. Gas Turbine, the largest of Sequa's
operating units, repairs and manufactures components for jet
aircraft engines. A major independent supplier in the repair
market, Gas Turbine provides domestic and international airlines
with technologically advanced repairs and coatings for turbine
airfoils and other critical engine components. The unit also
supplies components to the manufacturers of jet engines and
serves both the general aviation and military markets.
Gas Turbine has built on its metallurgical process
technologies to develop procedures that permit the repair and
reuse of turbine engine components. Management believes
<PAGE>
Gas Turbine has played a key role in the development of the
repair market for certain jet engine parts. Over the years, Gas
Turbine has continued to invest in research and development
projects that have led to ceramic coatings, vacuum plasma
coatings, advanced laser drilling and welding, and diffused
precious metal/aluminide coatings. Gas Turbine has introduced a
series of innovative and in some cases proprietary processes that
allow engines to perform at improved efficiency levels, at higher
operating temperatures and under severe environmental conditions.
ARC Propulsion. ARC Propulsion, a supplier of solid rocket
fuel propulsion systems since 1949, is a leading developer and
manufacturer of advanced rocket propulsion systems, gas
generators and auxiliary rockets, and engages in research and
development relating to new rocket propellants and advanced
engineered materials. For the military contract market, ARC
Propulsion produces propulsion systems for tactical weapons, and
for space applications, ARC Propulsion produces small liquid
fueled rocket engines designed to provide attitude and orbit
control for a number of satellite systems worldwide.
ARC Propulsion's strategy has been to pursue opportunities
to develop products for commercial markets in order to reduce its
reliance on defense-related business. ARC has pioneered the
development of hybrid inflators for automotive airbags and
production of energetic materials for airbag deployment. In
early 1998, ARC moved to further its role in the automotive
market through the purchase of its partner's share of a venture
that produces airbag inflators.
Machinery and Metal Coatings Segment
- ------------------------------------
The Company's Machinery and Metal Coatings segment is
composed of Precoat Metals, Sequa Can Machinery and MEGTEC
Systems.
Precoat Metals. The largest individual unit of the segment,
Precoat Metals is a leader in the application of protective and
decorative coatings to continuous steel and aluminum coil.
Precoat's principal market is the building products industry,
where coated steel is used for the construction of pre-engineered
building systems, and as components in the industrial,
commercial, agricultural and residential sectors. Precoat also
serves the container industry, where the division has established
a position in the application of coatings to steel and aluminum
stock used to fabricate metal cans and can lids. In addition,
the division has established a presence in other product markets,
including heating, ventilating and air conditioning units, truck
trailer panels and office equipment.
<PAGE>
Sequa Can Machinery. Sequa Can Machinery designs and
manufactures equipment for the two-piece can industry. At a
facility on the East Coast, Sequa Can Machinery manufactures
high-speed equipment to coat and decorate two-piece beverage
cans. With the largest installed base of equipment in the field,
Sequa Can Machinery also supplies upgrade kits and spare parts
and maintains an extensive support service program. The
division's product development team has improved the technology
of precision printing to achieve higher speeds without
compromising quality. The current generation of equipment runs
at a rate of 2,000 cans per minute, applying an even base coat
and printing crisp, clear images in up to eight colors. At its
West Coast plant, Sequa Can Machinery produces equipment used to
form the cup and body of two-piece metal cans. The latest
generation of cupping equipment supports two high speed can
lines, producing more than 4,500 shallow cups per minute. The
company's newest bodymaker operates at a rate up to 500 cans per
minute.
MEGTEC Systems. MEGTEC, which was formed in 1997 through
the combination of MEG with recently acquired TEC systems,
supplies equipment for the web offset printing industry,
including pasters and splicers, web guides, infeeds, chill stands
and related equipment for high-speed web presses. MEGTEC's
products also include air flotation dryers for paper and printing
uses and emission control systems for industrial applications.
Specialty Chemicals Segment
- ---------------------------
The two operations that make up the Company's Specialty
Chemicals segment, Warwick International and Sequa Chemicals,
serve distinctly different markets with performance-enhancing
additives for a broad range of end products.
Warwick International. The larger of the two businesses in
the Specialty Chemicals segment, Warwick is a leading producer
and supplier of TAED, a bleach activator for powdered laundry
detergent products. TAED is used in oxygen-based bleaching
systems to increase the cleaning power of detergent at low wash
temperatures. These bleaching systems, as opposed to the
chlorine-based bleaches traditionally used in the US, are used in
international markets, primarily in Europe. The unit also
markets and distributes diverse chemical products in Europe
including plastics, resins, paints and cosmetics.
Sequa Chemicals. Sequa Chemicals manufactures high-quality
performance-enhancing chemicals for the paper, textile and other
industries. For the paper industry, Sequa Chemicals produces key
synthetic coating additives for coated papers including
Reactopaque, which increases the opacity of finished paper
primarily used by the newsprint industry. Sequa Chemicals
supplies the woven and knit fabric market with permanent press
<PAGE>
resins, softeners, water repellents, soil release agents and
other chemicals to improve the look, feel and durability of
clothing and other textiles. In addition, Sequa Chemicals has
developed and patented a unique series of specialty emulsion
polymers for a broad range of commercial applications, including
roofing mat, industrial filtration systems and tape release
coatings.
Other Products Segment
- ----------------------
This segment includes three primary businesses: Casco
Products, the men's apparel unit and Northern Can Systems.
Casco Products. Casco, which has been serving the
automotive products market since 1921, is the world's leading
supplier of automotive cigarette lighters. Casco also offers a
growing line of automotive accessories, led by a series of
electronic devices to monitor automotive fluid levels. These
products are presently used as gauges for engine oil and engine
coolant and may also be used to monitor brake, transmission and
power steering fluids. Casco's other products include auxiliary
power outlets and daytime running lights.
Men's Apparel. The men's apparel unit designs and
manufactures men's formalwear and accessories marketed under the
labels Raffinati, Oscar de la Renta and After Six.
Northern Can Systems (NCS). NCS, which was sold in December
1997, supplied the domestic and international food processing
market with easy-open lids for cans.
Principal Products
------------------
The percentage of Sequa's consolidated sales contributed by
each class of similar products, which accounted for 10 percent or
more of such consolidated sales during the last three fiscal
years, is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gas Turbine 46% 44% 39%
Precoat Metals 13% 12% 12%
ARC Propulsion 11% 10% 10%
</TABLE>
<PAGE>
Markets and Methods of Distribution
-----------------------------------
Gas Turbine markets its gas turbine engine component
manufacturing and repair services primarily to the major airlines
of the world, manufacturers of commercial jet engines, and the
military. Gas Turbine's products and services are marketed
directly and through sales representatives working on a
commission basis.
A portion of the sales of Gas Turbine's operations is made
pursuant to contracts with various agencies of the United States
Government, particularly the Department of the Air Force, with
which Gas Turbine has had a long-term relationship.
Sequa markets its rocket propulsion systems generally on a
subcontract basis under various defense programs of the United
States Government. Among the programs currently in production
are the Army Extended Range Multiple Launch Rocket System,
Extended Range Army Tactical Rocket System, Javelin, Stinger,
Tomahawk, Standard Missile, Sidewinder, and Patriot Advanced
Capability (PAC-3) missile system. In addition, ARC Propulsion
markets it automotive airbag components to the automotive
industry through its two joint ventures, BAICO and BAG SpA. In
January 1998, the Company increased its ownership in BAICO to
100%.
Sequa's Machinery and Metal Coatings Segment sells its
machinery products directly to the container industry, as well as
to the web printing and paper industries and other converting
customers. The metal coatings business sells its coating
services to regional steel and aluminum producers, building
product manufacturers, merchant can makers and manufacturers of
other diverse products.
The Specialty Chemicals Segment sells textile chemicals
directly to manufacturers of fabric for clothing and other
products. Paper chemicals are sold directly to paper mills and
detergent chemicals are sold to detergent manufacturers.
Specialty polymers are sold directly to the producers of roofing
mats, industrial filters, and tape and label products.
The automotive products subsidiary sells cigarette lighters,
power outlets and various electronic monitoring devices directly
to the automotive industry. The men's apparel unit sells its
formalwear to rental and retail customers, primarily through
independent sales representatives.
<PAGE>
Competition
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There is significant competition in the industries in which
Sequa operates, and, in several cases, it competes with larger
companies having substantially greater resources than those of
Sequa.
Sequa believes that it is currently the world's largest
manufacturer of cylindrical can decorating and can forming
equipment, the world's largest supplier of automotive cigarette
lighters, one of the largest manufacturers of permanent press
textile finishing resins and the largest supplier of men's
formalwear in the United States.
Sequa, through its Gas Turbine operations, is a leader in
the development and use of advanced metallurgical and other
processes to manufacture, repair and coat blades, vanes and other
components of gas turbine engines used for commercial and
military jet aircraft. Gas Turbine's divisions compete for
turbine engine repair business with a number of other companies,
including the original equipment manufacturers (OEMs). Such OEMs
generally have obligations (contractual and otherwise) to approve
vendors to manufacture components for their engines and/or
perform repair services on their engines and components. Gas
Turbine has a number of such approvals, including licensing
agreements, which allow it to manufacture and repair certain
components of flight engines. The loss of approval by one of the
major OEMs to manufacture or repair components for such OEM's
engines could have an adverse effect on Chromalloy, although
management believes it has certain actions available to it to
mitigate the adverse effect.
Sequa's rocket propulsion systems business competes with
several other companies for defense business. In some cases,
these competitors are larger than Sequa and have substantially
greater resources. Government contracts in this area are
generally awarded on the basis of proven engineering capability
and price. The Company's ability to compete is enhanced by the
US Government's need for alternative sources of supply under
these contracts.
Sequa's Precoat Metals operation is the leading independent
domestic coil coater of steel for metal building panels. Sequa's
cylindrical can decorating and can forming equipment operations
are world leaders in their markets. MEGTEC is a major
international supplier of auxiliary press equipment, air
flotation dryers and emission control equipment.
<PAGE>
Sequa's Specialty Chemicals segment competes in each of its
markets with a number of other manufacturers, some of which are
larger and have greater resources than Sequa. The units in this
segment compete on the basis of product development, technical
service, quality and price.
Sequa's automotive products manufacturer is the world's
leading producer of cigarette lighters for both the original
equipment market and the auto aftermarket. The men's apparel
unit is the leading domestic producer of men's formalwear and
competes on the basis of design, quality of manufacturing and
price.
Raw Materials
-------------
The various segments of Sequa's business use a wide variety
of raw materials and supplies. Generally, these have been
available in sufficient quantities to meet requirements, although
occasional shortages have occurred.
Seasonal Factors
----------------
With the exception of the Company's men's apparel business,
which has stronger sales in the first six months of the year,
Sequa's business is not considered seasonal to any significant
extent.
Patents and Trademarks
----------------------
The Company owns and is licensed to manufacture and sell
under a number of patents, including patents relating to its
metallurgical processes. These patents and licenses were secured
over a period of years and expire at various times. The Company
has also created and acquired a number of trade names and
trademarks. While Sequa believes its patents, patent licenses,
trade names and trademarks are valuable, it does not consider its
business as a whole to be materially dependent upon any
particular patent, license, trade name, trademark or any related
group thereof. It regards its technical and managerial knowledge
and experience as more important to its business.
Backlog
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Backlog information is included in the Management's
Discussion and Analysis of Financial Condition and Results of
Operations on page 24 of this Annual Report on Form 10-K and is
hereby incorporated by reference.
<PAGE>
Research and Development
------------------------
Research and development costs, charged to expense as
incurred, amounted to approximately $13.3 million in 1997, $12.9
million in 1996 and $15.2 million in 1995.
Environmental Matters
---------------------
The Company has been notified that it has been named as a
potentially responsible party under Federal and State Superfund
laws and/or has been named as a defendant in suits by private
parties (or governmental suits including private parties as co-
defendants) with respect to sites currently or previously owned
or operated by the Company or to which the Company may have sent
hazardous wastes. The Company is not presently aware of other
such lawsuits or notices contemplated or planned by any private
parties or environmental enforcement agencies. The aggregate
liability with respect to these matters, net of liabilities
already accrued in the Consolidated Balance Sheet, will not, in
the opinion of management, have a material adverse effect on the
results of operations or the financial position of the Company.
These environmental matters include the following:
A number of claims have been filed in connection with
alleged groundwater contamination in the vicinity of a
predecessor corporation site which operated during the 1960s and
early 1970s in Dublin, Pennsylvania. In October 1987, a class
action was filed by residents of Dublin against the Company and
two other defendants. The Borough of Dublin also filed suit
seeking remediation of alleged contamination of the Borough's
water supply and damages in an unspecified amount. A settlement
was reached in the class action in which the Company paid $1.8
million in 1997. The Borough action has been settled in
principle, by which the Company has agreed to pay $1.8 million.
The Pennsylvania Department of Environmental Protection
entered into a Consent Decree with the Company in 1990 providing
for the performance of a remedial investigation and feasibility
study with respect to the same alleged groundwater contamination
in Dublin. The US Environmental Protection Agency (EPA) also
placed the site on the Superfund List in 1990 and, in conjunction
therewith, entered into a Consent Agreement with the Company on
December 31, 1990. EPA estimates that the cost of the interim
remedy will be approximately $4 million. The investigation for
the final remedy is still in progress.
<PAGE>
The State of Florida issued an Administrative Order
requiring TurboCombustor Technology, Inc. (TCT), a subsidiary of
Gas Turbine, to investigate and to take appropriate corrective
action in connection with alleged groundwater contamination in
Stuart, Florida. The contamination is alleged to have arisen
from a 1985 fire which occurred at TCT's former facility in
Stuart. The City of Stuart has subsequently constructed and is
operating a groundwater remediation system. The Company
negotiated a conditional settlement with the City of Stuart in
October 1994 whereby it would contribute its ratable share of the
capital and operating costs for the groundwater treatment system.
The Company estimates the amount to be paid in settlement plus
additional groundwater sampling and analysis will be
approximately $2 million to be paid over a ten-year period
beginning when the Order is unconditionally entered.
In September 1993, fourteen homeowners residing in West
Nyack, New York served a complaint on Gas Turbine and others
alleging, among other things, that contamination from a former
Gas Turbine site caused the plaintiffs' alleged property damage.
Gas Turbine believes it has strong defenses under New York law to
the plaintiffs' complaint. Gas Turbine entered into a Consent
Order with the New York Department of Environmental Conservation
on February 14, 1994, to undertake the remedial investigation and
feasibility study (RI/FS) relating to the alleged contamination
in the vicinity of the former Gas Turbine site. The RI/FS is not
yet completed.
It is the Company's policy to accrue environmental
remediation costs for identified sites when it is probable that a
liability has been incurred and the amount of loss can be
reasonably estimated. At December 31, 1997, the potential
exposure for such future costs is estimated to range from $16
million to $33 million, and the Company's balance sheet includes
accruals for remediation costs of $28.7 million. These accruals
are at undiscounted amounts and are included in accrued expenses
and other noncurrent liabilities. While the possibility of
further recovery of some of the costs from insurance companies
exists, the Company does not recognize these recoveries in its
financial statements until they are realized. Actual costs to be
incurred at identified sites in future periods may vary from the
estimates, given inherent uncertainties in evaluating
environmental exposures.
With respect to all known environmental liabilities, the
Company's actual cash expenditures for remediation of previously
contaminated sites were $9.7 million in 1997, $10.0 million in
1996 and $10.6 million in 1995. The Company anticipates that
remedial cash expenditures will be in the $8 million to $14
million range during 1998 and between $6 million and $8 million
during 1999. The Company's capital expenditures for projects to
eliminate, control or dispose of pollutants were $4.6 million,
<PAGE>
$1.7 million and $1.6 million in 1997, 1996 and 1995,
respectively. The Company anticipates environmental-related
capital programs to be approximately $4 million during 1998 and
$2 million during 1999. The Company's operating expenses to
eliminate, control and dispose of pollutants have averaged
approximately $11 million per year during the last three years.
The Company anticipates that environmental operating expenses
will be approximately $12 million per year during 1998 and 1999.
Employment
----------
At December 31, 1997, Sequa employed approximately 11,000
persons of whom approximately 2,700 were covered by union
contracts.
The approximate number of employees attributable to each
reportable business segment as of December 31, 1997 was:
<TABLE>
<CAPTION>
Approximate
Segment Number of Employees
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<S> <C>
Aerospace 7,400
Machinery and Metal Coatings 1,800
Specialty Chemicals 700
Other Products 1,000
Corporate 100
------
Total 11,000
======
</TABLE>
The Company considers its relations with employees to be
generally satisfactory. Sequa maintains a number of employee
benefit programs, including life, medical and dental insurance,
pension and 401(K) plans.
(d) Foreign Operations. Sequa's consolidated foreign operations
-------------------
include Gas Turbine's operations in England, France, Israel,
Japan, Mexico, Netherlands and Thailand within the Aerospace
Segment; detergent chemicals operations in Wales and chemical
distribution operations in France, Italy, Spain and Portugal
within the Specialty Chemicals Segment; the auxiliary press
equipment suppliers in France, Germany, Singapore, Sweden and the
United Kingdom within the Machinery and Metal Coatings Segment;
and an automotive products operation in Italy in the Other
Products Segment. Sales, operating income and identifiable
assets attributable to foreign operations, and export sales, are
set forth in Note 18 to the Consolidated Financial Statements on
page 61 of this Annual Report on Form 10-K and are incorporated
herein by reference.
<PAGE>
ITEM 2. PROPERTIES
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Aerospace
- ---------
Gas Turbine operates over 40 plants in eleven states and
seven foreign countries, which have aggregate floor space of
approximately 3,350,000 square feet, of which approximately
1,750,000 square feet is owned and approximately 1,600,000 square
feet is leased. The leases covering facilities used in this
business have various expiration dates, and some have renewal or
purchase options.
Rocket propulsion operations lease two principal
manufacturing facilities, a 421-acre site in Gainesville,
Virginia, and a 955-acre manufacturing facility in Camden,
Arkansas. The Gainesville lease expires in 2012, and the Camden
lease, which has various renewal options to 2014, expires in
1998. Adjacent to the Gainesville leased facility, the Company
owns 12 acres and an 89,000 square foot office and manufacturing
complex. An additional 134,000 square feet is leased for
administrative, research and manufacturing purposes in Alabama,
California, Massachusetts and Virginia. The liquid propulsion
division leases a 96,000 square foot facility in Niagara, New
York. The Company also owns 2,454 acres of land in Orange
County, Virginia, which has been developed for use in the
propellant business.
Facilities in this segment are suitable and adequate for the
business and are operating at a moderate level of utilization.
Capital spending plans for the operations in this segment are
primarily designed to keep up with current technology or to meet
specific requirements for various government or commercial
contracts.
Machinery and Metal Coatings
- ----------------------------
The Sequa Can Machinery operation owns two plants in the
United States with aggregate floor space of 228,000 square feet
and leases manufacturing and office space of approximately 16,000
square feet. MEGTEC owns manufacturing and office facilities in
De Pere, Wisconsin with aggregate floor space of 314,000 square
feet and a plant in France with aggregate floor space of
approximately 62,000 square feet. MEGTEC also leases a
manufacturing plant and four sales offices and owns a storage
facility in Europe with a total of 96,000 square feet and leases
a 2,500 square foot sales office in Singapore. The Precoat
Metals operation owns seven manufacturing facilities in six
states with a total of 1,140,000 square feet of manufacturing and
office space. An additional 142,000 square feet of office and
warehouse space is leased in Illinois and Missouri.
<PAGE>
The properties in this segment are suitable and adequate for
the business presently being conducted. With the exception of
most coil coating lines, which have high utilization rates, the
facilities in this segment are functioning at a moderate level of
utilization.
Specialty Chemicals
- -------------------
Units within the Specialty Chemicals segment own a plant and
an office building situated on 88 acres in South Carolina with
aggregate floor space of 164,000 square feet, a plant and an
office building situated on 22 acres in North Carolina with
aggregate floor space of 142,000 square feet, and a plant in the
United Kingdom with aggregate floor space of 203,000 square feet
on approximately 55 acres of land. Units within the segment also
lease a 22,000 square foot warehouse in South Carolina and 8,000
square feet of office and warehouse space in six separate
locations in Europe.
Facilities in this segment are adequate and suitable for the
business being conducted. Except for the plant in North
Carolina, facilities within this segment operate at a high
utilization rate.
Other Products
- --------------
The automotive products subsidiary, Casco Products, leases a
168,000 square foot plant in Connecticut, a 1,600 square foot
sales office in Detroit, Michigan, and a 30,000 square foot
manufacturing facility in Italy. The men's apparel unit owns
manufacturing and office facilities in Athens, Georgia with
aggregate floor space of approximately 138,000 square feet. This
unit also leases 4,000 square feet of office space in Hackensack,
New Jersey and New York, New York of which 1,200 square feet is
sublet.
The Centor Company, a wholly-owned subsidiary, owns nine
small properties that are either leased to third parties and/or
held for sale.
Facilities in this segment are adequate and suitable for the
business being conducted. Casco Products' leased facilities and
the men's apparel unit's owned facilities operate at high
utilization rates.
Corporate
- ---------
The Company leases 56,000 square feet of corporate office
space in New York, New York and Hackensack, New Jersey.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
Information with respect to the Company's legal proceedings
is included in Note 19 to the Consolidated Financial Statements
on pages 62 through 64 of this Annual Report on Form 10-K and is
hereby incorporated by reference. Additional information on
environmental matters is covered in the Environmental Matters
section on pages 9 through 11 of this Annual Report on Form 10-K
and is hereby incorporated by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
None
EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
The following information is furnished pursuant to General
Instruction G(3) of Form 10-K and Instruction 3 to Item 401(b) of
Regulation S-K with respect to the executive officers of the
Company:
<TABLE>
<CAPTION>
Name Age Position Held
---- --- -------------
<S> <C> <C>
Norman E. Alexander 83 Chairman of the Board, Chief
Executive Officer, Director and
member of the Executive Committee
John J. Quicke 48 President, Chief Operating Officer,
Director and member of the Executive
Committee
Stuart Z. Krinsly 80 Senior Executive Vice President -
General Counsel, Director and member
of the Executive Committee
Gerald S. Gutterman 69 Executive Vice President -
Finance and Administration
Martin Weinstein 62 Senior Vice President -
Chromalloy Gas Turbine Operations
</TABLE>
Sequa is not aware of any family relationship among any of
the above-named executive officers. All of the above-named
executive officers have been employed by the Company in the same
or a similar capacity for at least five years. Each of such
officers holds his office for a term expiring on the date of the
annual organization meeting of the Board of Directors, subject to
the provisions of Section 5 of Article IV of the Company's
By-Laws relative to removal of officers.
<PAGE>
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
- ------- -------------------------------------------------
STOCKHOLDER MATTERS
-------------------
(a) Market Information.
The following table sets forth the high and low sales prices
of Sequa Class A common stock and Sequa Class B common stock for
the calendar periods indicated on the Exchange Composite Tape, as
reported by the National Quotation Bureau Incorporated:
<TABLE>
<CAPTION>
Sequa Class A Sequa Class B
------------- -------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1997
First Quarter 46 7/8 36 1/4 52 46 1/2
Second Quarter 56 5/8 44 5/8 62 1/4 50
Third Quarter 57 3/4 50 3/4 63 57 1/4
Fourth Quarter 67 15/16 55 7/16 74 11/16 62 1/2
1996
First Quarter 35 5/8 29 1/2 41 5/8 39
Second Quarter 43 1/8 34 50 40 1/2
Third Quarter 46 1/2 38 3/8 53 5/8 47 1/4
Fourth Quarter 45 3/4 38 3/4 53 1/8 48 1/4
</TABLE>
(b) Holders.
Shares of Sequa Class A common stock and Sequa Class B
common stock are listed on the New York Stock Exchange. There
were approximately 2,550 holders of record of the Sequa Class A
common stock and approximately 560 holders of record of the Sequa
Class B common stock at March 10, 1998.
(c) Dividends.
During the years ended December 31, 1997 and 1996, no
dividends were declared on Sequa Class A common shares or Class B
common shares. The Company has no present intent to pay cash
dividends on its common shares.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
- ------- -----------------------
The following table sets forth selected financial information for, and as of
the end of, each of the five years in the period ended December 31, 1997. Such
information should be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto, filed herewith.
<TABLE>
(Amounts in millions, except per share)
<CAPTION>
Year ended December 31, 1997 1996 1995 1994 1993
- --------------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Sales $1,595.1 $1,459.0 $1,414.1 $1,419.6 $1,697.0
Operating income 84.7 65.2 67.9 39.8 15.7
Income (loss) before
extraordinary item 19.6 9.6 8.8 (24.7) (55.5)
Extraordinary loss - (0.4) - (1.1) (8.5)
-------- -------- -------- -------- --------
Net income (loss) $ 19.6 $ 9.2 $ 8.8 $ (25.8) $ (64.0)
======== ======== ======== ======== ========
BASIC AND DILUTED EARNINGS
(loss) per share
Income (loss) before
extraordinary item $ 1.66 $ .65 $ .57 $(2.87) $(6.07)
Extraordinary loss - (.04) - (.11) (.88)
------- ------- ------ ------ ------
Net income (loss) $ 1.66 $ .61 $ .57 $(2.98) $(6.95)
CASH DIVIDENDS DECLARED
Preferred $ 5.00 $ 5.00 $ 5.00 $ 7.50* $ 2.50
Class A common - - - - .30
Class B common - - - - .25
FINANCIAL POSITION
Current assets $ 695.8 $ 612.2 $ 621.2 $ 604.3 $ 661.6
Total assets 1,591.7 1,548.2 1,622.0 1,648.2 1,803.5
Current liabilities 366.7 302.7 324.7 321.3 376.5
Long-term debt 508.7 531.9 563.2 586.6 624.1
Shareholders' equity 594.4 590.8 576.6 566.5 575.8
<FN>
* Includes $2.50 of dividends in arrears for the third and fourth quarters of
1993.
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------- -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
OPERATING RESULTS 1997 - 1996
SALES
Sales for 1997 were 9% higher than a year earlier, primarily due
to gains in the Aerospace segment, the impact of 1997 niche
acquisitions, the January 1997 recontinuance of the men's apparel
unit, and gains at the metal coatings unit. These advances were
tempered by declines at the auxiliary press equipment, can
machinery and overseas specialty chemicals units.
Sales in the Aerospace segment were ahead 14% in 1997,
with both operations in the segment posting solid gains. At the
Gas Turbine unit, sales to both the repair market and the
original equipment manufacturers (OEM) moved higher, a reflection
of the strong demand generated by the international airline
industry. Although management currently anticipates that the
rising sales pattern at Gas Turbine will continue in the first
half of 1998, competition from the engine manufacturers for
aftermarket repair business remains intense. Year-end backlog at
the major OEM facilities was up more than 35% from year-end 1996.
At the ARC Propulsion unit, sales advanced 18% in 1997,
with increases in each of the three main product areas: solid
rocket motors, automotive airbag components and liquid rocket
motors. Sales of the unit will undergo a significant change in
1998. Historically, ARC Propulsion has consolidated only sales
of airbag inflator components to Bendix Atlantic Inflator Company
(BAICO), a 50/50 joint venture with AlliedSignal. On January 27,
1998, ARC purchased AlliedSignal's 50% interest in BAICO and now
owns 100% of this operation. Beginning on January 28, 1998,
results of BAICO, renamed Atlantic Research Automotive Products
Group, will be reported on a consolidated basis, and the sale of
complete automotive airbag inflators to automotive industry
customers will be included in sales of ARC. As a result,
reported sales related to automotive airbag inflators are
projected to more than double in 1998.
Sales of the Machinery and Metal Coatings segment
declined 3% in 1997, as sharp declines at MEG, the French
auxiliary press equipment unit, and at the can machinery
operations were largely offset by a solid advance at the metal
coatings unit and by sales added by businesses acquired in 1997.
Without sales from the businesses acquired in 1997, the decline
would have been 11%. Sales of the metal coatings unit advanced
10% in 1997, with increases in each of its three product lines:
building products, containers and manufactured products. Sales
of the can machinery operation declined sharply in 1997,
reflecting a cyclical downturn in the worldwide container
<PAGE>
SALES (con't)
industry. Despite the sharp drop in the number of can line
installations in 1997, the unit has improved its already strong
market position, particularly in can forming equipment. Based on
year-end backlog, and the uncertainties in Asian markets,
management currently anticipates that sales will remain sluggish
for at least the first half of 1998. Late in the third quarter,
the Company acquired the TEC Systems unit of W.R. Grace, combined
it with MEG, and named the combined operation MEGTEC Systems.
The TEC acquisition bolsters the auxiliary press equipment
product line, increases technical expertise, reduces the combined
cost structure and significantly expands product offerings beyond
MEG's traditional graphic arts market. This unit registered a
10% decline in 1997, as the sales generated by TEC in the final
four months of the year did not fully offset the substantial
decline in MEG sales for the year. Sales of MEGTEC Systems are
expected to be significantly higher in 1998.
Sales of the Specialty Chemicals segment declined 1% in
1997, as advances at the domestic unit largely offset declines at
the overseas unit. Local currency sales for the overseas unit
declined 12% in 1997 primarily because of the continued
strengthening of the British pound sterling against other
European currencies. The reported US dollar sales decline was
tempered by a 5% average increase in the dollar value of the
pound sterling in the same period. In 1998, the unit will
benefit from sales generated by an Italian chemical marketing and
distribution operation that was acquired in February 1998. At
the domestic chemicals unit, sales advanced 11% in 1997, due
largely to the May 1997 acquisition of Sedgefield Specialties, a
supplier to the textile market. Sales for the first quarter of
1998 at the unit are expected to compare favorably to the 1997
period due primarily to the addition of Sedgefield.
Sales of the Other Products segment advanced 39%, a
reflection of the recontinuance of the men's apparel unit in
January 1997 and advances at both the automotive products unit
and the can lid unit. The automotive products unit recorded a 6%
increase in sales, primarily due to strong demand in the domestic
market for cigarette lighters and power outlets. The 1998
outlook for this unit is largely dependent on the volume and mix
of North American car and light truck production. Sales of the
men's apparel unit were strong in 1997 and are expected to remain
strong in the first half of 1998. The unit began 1998 with a
solid backlog of orders for men's formalwear, which includes
orders related to its new After Six label. Sales of this unit
tend to be seasonal, with stronger sales in the first six months
of the year. Sales of the can lid unit advanced 26%, primarily a
reflection of a 53% gain in export sales. On December 17, 1997,
the Company divested the can lid business, a move that will
affect the 1998-1997 comparisons for this segment. In 1997,
revenues of the real estate unit declined sharply as a result of
<PAGE>
SALES (con't)
the Company's program to sell excess real estate. Operating
income increased 30% in 1997, with advances in the Aerospace and
Other Products segments partially offset by declines in the
Machinery and Metal Coatings and the Specialty Chemicals
segments.
OPERATING INCOME
Operating income for the Aerospace segment nearly
quadrupled in 1997 primarily due to the substantially higher
results posted by Gas Turbine. In addition to the improved
operating performance of Gas Turbine units serving both OEM and
repair markets, Gas Turbine results for 1997 benefitted from two
factors: substantially lower costs in connection with litigation
involving the Pratt & Whitney division of United Technologies
Corporation ($9.9 million in 1997 versus $33.0 million in 1996)
and the favorable settlement of a dispute with the Egyptian
government, which added $2.7 million to operating income. Year-
to-year comparisons were also affected by the 1996 reversal of
workers' compensation insurance reserves, which were actuarially
determined to be in excess of requirements. The Gas Turbine
units serving the original equipment market operated at a profit
in 1997 versus a loss in 1996, as sales rose substantially in
response to overall vigor in the marketplace and the strong
position held by Gas Turbine. In addition, 1997 results for
these units benefitted from the late 1996 disposal of an under-
performing unit. Improvement at the Gas Turbine repair units
primarily reflects the higher sales to an expanding commercial
aviation market. Based on strong backlog at the OEM units and
continuing strength in repair sales, management currently
anticipates favorable operating income comparisons for at least
the first half of 1998. The ARC Propulsion unit also recorded a
profit advance, primarily a reflection of higher sales, tempered
by the impact of start-up costs on several new programs related
to automotive airbag inflators, and cost growth on certain
government programs. Results for the first quarter of 1998 will
include two months of the recently acquired automotive airbag
inflator business.
Operating income in the Machinery and Metal Coatings
segment declined 58% in 1997 due to a sharp decline in profits at
the can machinery unit and a larger loss at MEG, the French
auxiliary press equipment unit. Operating income at the metal
coatings unit was on a par with the prior year, as the benefits
of increased sales were offset by lower operating margins. The
decline at the can machinery operation was primarily related to
the sharp cyclical downturn in sales. Earnings comparisons in
early 1998 are expected to continue to be unfavorable as the
worldwide slowdown in can line installations is expected to
continue. The loss at the new MEGTEC Systems unit was double the
loss reported in 1996, due entirely to increased losses at MEG.
<PAGE>
OPERATING INCOME (con't)
The increased loss was primarily due to: sharply lower sales to
the graphic arts market, increased warranty costs, increased bad
debt provisions, and significant one-time costs incurred to
effect the combination of MEG and TEC. The post-combination plan
includes a significant layoff at MEG, which, due to legal
requirements in France, was delayed until the first quarter of
1998; accordingly, the Company did not record a severance
provision in 1997. The affected employees were notified and the
reduction in the work force was completed in February 1998;
accordingly, the Company will record a severance provision in the
first quarter of 1998 that will reduce earnings by approximately
20 cents per share. Based on the MEGTEC backlog entering 1998
and the cost savings already achieved by a new management team at
MEGTEC, the Company anticipates a significant improvement in
performance for this unit in 1998.
Operating income in the Specialty Chemicals segment
declined 30%, with results of both units lower than in 1996. At
the overseas unit, the profit decline was attributable to the
strength of the British pound sterling against other European
currencies, a situation that began in the fourth quarter of 1996.
If the pound sterling maintains its strength against other
European currencies, 1998 operating results for the detergent
chemicals product line will remain under pressure. At the
domestic unit, profits registered a small decline as the benefits
of higher sales and the Company's 1997 change to the FIFO method
of inventory valuation, which primarily benefitted this unit,
cushioned the impact of the 1996 one-time favorable effect of a
legal settlement and lower margins.
Operating income in the Other Products segment advanced
22%, as the inclusion of the profits from the men's apparel unit
and an advance at the can lid unit offset declines at the
automotive products unit and the real estate unit. Profits of
the automotive products unit declined as the benefits of
increased sales were more than offset by lower margins. The can
lid unit primarily benefitted from higher sales levels. The real
estate unit declined primarily due to significantly lower
revenues, as the Company has largely disposed of excess real
estate held by this unit. The men's apparel unit is expected to
continue to report strong results in the first half of 1998.
INTEREST EXPENSE
The decrease in interest expense of approximately $1.5 million
was due to a decrease in average borrowings attributable to
scheduled principal payments and early retirement of debt in the
third quarter of 1996.
<PAGE>
EQUITY IN INCOME (LOSS) OF UNCONSOLIDATED JOINT VENTURES
During 1997 and 1996, the Company had investments in two
unconsolidated joint venture partnerships which were formed to
develop, produce and market hybrid inflators for automotive
airbags: BAICO, a 50/50 joint venture formed with AlliedSignal;
and BAG SpA, an Italian company formed with AlliedSignal and a
subsidiary of Fiat Avio, with each participant owning a one-third
interest in the venture. In the fourth quarter of 1997,
AlliedSignal sold its automotive safety restraints business and
its one-third interest in BAG SpA to Breed Technologies.
Following these transactions, Breed became the largest customer
of BAICO and BAG SpA. In January 1998, the Company increased its
ownership in BAICO to 100% with the purchase of AlliedSignal's
share of the joint venture.
The Company's share of the earnings or losses of the
unconsolidated airbag businesses was an equity loss of $1.8
million in 1997 and equity income of $1.4 million in 1996. The
Company guaranteed $25.0 million of BAICO's revolving credit
debt; accordingly, the Company continued applying the equity
method when the BAICO investment was reduced below zero. At
December 31, 1997 and 1996, the Company's equity in the losses of
its airbag businesses exceeded its investment by $17.6 million
and $15.8 million, respectively, and the negative investment is
included in Other noncurrent liabilities in the Consolidated
Balance Sheet.
The Company has other ownership interests in joint
ventures, the largest of which is a 50/50 partnership with United
Technologies Corporation in Advanced Coatings Technologies (ACT),
a joint venture which owns and operates an electron beam ceramic
coater for the application of Pratt & Whitney coatings. The
Company's equity share of the earnings of ACT was income of $2.3
million in 1997 and $3.2 million in 1996.
OTHER, NET
In 1997, Other, net included gains on the sale of property, plant
and equipment of $2.5 million; letters of credit and commitment
fees of $1.6 million; $1.4 million in charges for the
amortization of capitalized debt costs; and $1.3 million of
income on the cash surrender value of corporate-owned life
insurance.
In 1996, Other, net included gains on the sale of
property, plant and equipment of $8.3 million; letters of credit
and commitment fees of $2.0 million; and $2.1 million in charges
for the amortization of capitalized debt costs.
<PAGE>
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are utilized by the Company to
manage foreign exchange risks. The Company has established a
control environment which includes policies and procedures for
risk assessment and the approval, reporting and monitoring of
derivative financial instrument activities. The Company does not
hold or issue derivative financial instruments for trading
purposes.
The Company's foreign operations utilize forward
exchange contracts to hedge existing assets and liabilities, firm
commitments and anticipated transactions denominated in
currencies other than the functional currency. Gains and losses
on forward exchange contracts designated as hedges of existing
assets and liabilities and anticipated transactions are
recognized in income as exchange rates change. Gains and losses
on hedges of firm sales and purchase commitments are deferred and
included in the basis of the transactions when they are
completed. The Company has also utilized forward foreign
exchange contracts to hedge foreign investments. Gains and
losses on these contracts are not included in income but are
recorded in cumulative translation adjustment, a component of
shareholders' equity.
The Company purchases foreign currency options to hedge
anticipated sales and purchases denominated in currencies other
than the functional currency. The cost of purchased foreign
currency options is amortized to expense on a straight-line basis
over the life of the option. Gains and losses on purchased
options are deferred and included in the basis of the anticipated
transactions if, and when, the options are exercised.
YEAR 2000 COMPUTER ISSUE
Certain of the Company's computer systems process transactions
based on storing two digits for the year of a transaction rather
than the full four digits. Such systems are not programmed to
consider the start of a new century and will encounter
significant processing difficulties in the year 2000, unless they
are fixed or replaced. During 1997, the Company began an
internal awareness program to ensure that all its operating units
are attuned to the millennium issue, and resources are being
devoted to identify critical business processes, to evaluate the
extent of the Company's year 2000 issues and to implement
required remedial actions.
The Company's operating units primarily utilize
purchased software. The related software maintenance agreements
provide for upgrades which have addressed, or will address the
year 2000 issue. The Company's estimate to become year 2000
compliant includes the entire cost of new software, even if such
<PAGE>
YEAR 2000 COMPUTER ISSUE (con't)
software is to be purchased primarily for benefits other than to
address the year 2000 issue. Costs of data processing personnel
on staff are not included in the estimate, but outside
consultants are included. Management currently estimates that
the cost of hardware, software, training, testing and other costs
will be approximately $15 million to $20 million. Approximately
40% of these costs will be capitalized, with the balance expensed
in 1998 and 1999.
The Company anticipates that its year 2000 compliance
program will be completed by mid-1999. Progress toward this goal
will be monitored closely.
ENVIRONMENTAL MATTERS
The Company's environmental department, under senior management
direction, manages all activities related to the Company's
involvement in environmental clean-up. This department
establishes the projected range of expenditures for individual
sites with respect to which the Company may be considered a
potentially responsible party under applicable federal or state
law. These projected expenditures, which are reviewed
periodically, include: remedial investigation and feasibility
studies; outside legal, consulting and remediation project
management fees; the projected cost of remediation activities;
and site closure and post-remediation monitoring costs. The
assessments take into account known conditions, probable
conditions, regulatory requirements, past expenditures, and other
potentially responsible parties and their probable level of
involvement. Outside legal, technical and scientific consulting
services are used to support management's assessments of costs at
significant individual sites.
It is the Company's policy to accrue environmental
remediation costs for identified sites when it is probable that a
liability has been incurred and the amount of loss can be
reasonably estimated. At December 31, 1997, the potential
exposure for future costs is estimated to range from $16 million
to $33 million and the Company's balance sheet includes accruals
for remediation costs of $28.7 million. These accruals are at
undiscounted amounts and are included in accrued expenses and
other noncurrent liabilities. While the possibility of further
recovery of some of the costs from insurance companies exists,
the Company does not recognize these recoveries in its financial
statements until they are realized. Actual costs to be incurred
at identified sites in future periods may vary from the
estimates, given inherent uncertainties in evaluating
environmental exposures.
<PAGE>
ENVIRONMENTAL MATTERS (con't)
With respect to all known environmental liabilities, the
Company's actual cash expenditures for remediation of previously
contaminated sites were $9.7 million in 1997, $10.0 million in
1996 and $10.6 million in 1995. The Company anticipates that
remedial cash expenditures will be between $8 million and $14
million during 1998 and between $6 million and $8 million during
1999. The Company's capital expenditures for projects to
eliminate, control or dispose of pollutants were $4.6 million,
$1.7 million and $1.6 million in 1997, 1996 and 1995,
respectively. The Company anticipates environmental-related
capital programs to be approximately $4 million during 1998 and
$2 million during 1999. The Company's operating expenses to
eliminate, control and dispose of pollutants have averaged
approximately $11 million per year during the last three years.
The Company anticipates that environmental operating expenses
will be approximately $12 million per year during 1998 and 1999.
BACKLOG
The businesses of Sequa for which backlogs are significant are
the Turbine Airfoils, Caval Tool, Turbocombustor Technology and
Castings units of Chromalloy Gas Turbine, and the ARC Propulsion
operations of the Aerospace segment; the Can Machinery and MEGTEC
operations of the Machinery and Metal Coatings segment; and in
1997, the men's apparel unit of the Other Products segment. The
aggregate dollar amount of backlog in these units at December 31,
1997 was $387.2 million ($293.5 million at December 31, 1996).
Sales of the men's apparel unit are seasonal, with stronger sales
in the first six months of the year; accordingly, this unit's
backlog is normally higher at December 31 than at any other time
of the year.
CAPITAL SPENDING
Capital expenditures amounted to $69.0 million in 1997, with
spending concentrated in the Aerospace segment and the metal
coatings unit. These funds were primarily used to upgrade
existing facilities and equipment and to expand capacity. The
Company anticipates that capital spending in 1998 will be
approximately $100 million and will again be concentrated in the
Aerospace segment and the metal coatings unit.
LIQUIDITY AND CAPITAL RESOURCES
In October 1997, the Company entered into a new $150 million
revolving credit agreement with a group of banks that extends
through October 2002. This agreement replaced an existing
revolving credit agreement which was due to expire in March 1998.
The rate of interest payable under the new agreement is, at the
Company's option, a function of the prime rate or the Eurodollar
rate. The agreement requires the Company to pay a commitment
fee, which is subject to adjustment based upon the ratio of debt
to EBITDA (earnings before interest, taxes, depreciation and
amortization), at an initial annual rate of .275% of the
unutilized amount available under the credit line.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (con't)
The Company's loan agreements and indentures contain
covenants which, among other matters, limit the ability of the
Company to pay dividends, incur indebtedness, make capital
expenditures, repurchase common and preferred stock, and
repurchase the 9 3/8% senior subordinated notes due 2003. The
Company must also maintain a minimum net worth and certain ratios
regarding interest coverage and debt to EBITDA, among other
restrictions.
In October 1999, the Company will be required to repay
the remaining $138.5 million principal balance of its 9 5/8%
senior unsecured notes. The Company presently intends to
refinance this debt on a long-term basis in late 1998 or early
1999.
The Company has a potential issue with the Internal
Revenue Service involving the 1989 restructuring of two
subsidiaries. At December 31, 1997, the amount involved,
including interest from the date of the resulting tax refund, was
approximately $75 million. While management believes its tax
position in this matter is appropriate, it has taken the
conservative position of providing reserves to cover an adverse
outcome. Management does not currently anticipate a resolution
of this matter in 1998, and believes that in the event of an
unfavorable resolution, the Company will have sufficient
resources available to make any adjudicated payment.
Management anticipates that cash flow from operations,
proceeds from the divestiture of assets, the $144.7 million of
credit available under the new revolving credit agreement, the
$25.0 million of short-term investments and the $93.7 million of
cash and cash equivalents on hand at December 31, 1997 will be
more than sufficient to fund the Company's operations and niche
acquisitions for the foreseeable future.
OTHER INFORMATION
Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings per Share," was issued in February 1997 and
replaces Accounting Principles Board (APB) Opinion No. 15. The
new statement simplifies the computations of earnings per share
(EPS) by replacing the presentation of primary EPS with basic
EPS, which is computed by dividing income available to common
stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS under the new statement
is computed similarly to fully diluted EPS pursuant to APB
Opinion No. 15. SFAS No. 128 was implemented by the Company in
the fourth quarter of 1997. With the exception of a one cent
increase in earnings per share for the quarter and nine months
ended September 30, 1997, the Company's basic EPS amounts
<PAGE>
OTHER INFORMATION (con't)
calculated under the new statement and included in this annual
report are exactly the same as previously reported primary EPS
calculated under APB Opinion No. 15.
Effective with the first quarter of 1998, SFAS No. 130,
"Reporting Comprehensive Income," will require certain changes in
assets and liabilities which were previously included within a
separate component of equity in the balance sheet to be reported
in the income statement as components of comprehensive income or
within a separate statement of comprehensive income that begins
with net income. Examples include foreign currency translation
adjustments, minimum pension liability adjustments and unrealized
gains and losses on certain securities. Other than previously
reported net income, the only other item that the Company will
present as a component of comprehensive income will be currency
translation adjustments which have been previously reported by
the Company in the Consolidated Statement of Shareholders'
Equity.
SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," was issued in June 1997 and
supersedes SFAS No. 14. The new statement will change the way
segment information is to be reported in annual financial
statements and will require selected segment information to be
reported in quarterly reports. In addition to the requirement
that companies disclose business segment data based on how
management makes decisions about allocating resources to segments
and measuring their performance, SFAS No. 131 will also require
entity-wide disclosures about the products and services an entity
provides, the countries in which it holds assets and reports
revenues, and its major customers. The Company must implement
this new standard in its 1998 annual report and in its quarterly
reports thereafter. The Company anticipates that the annual and
quarterly business segment disclosure required by SFAS No. 131
will not be significantly different in form or content from that
previously disclosed by the Company in its annual and quarterly
reports issued to stockholders.
FORWARD-LOOKING STATEMENTS
This document includes forward-looking statements made under the
safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. These statements are based on management's
current expectations, estimates and projections that are subject
to risks and uncertainties, including, but not limited to:
political, currency, regulatory, competitive and technological
developments. Consequently, actual results could differ
materially from these forward-looking statements.
<PAGE>
OPERATING RESULTS 1996 - 1995
SALES
Reported sales increased 3% in 1996. On a pro forma basis,
excluding the sales of units divested in 1995, sales increased
11% to $1.5 billion. Approximately 20% of the pro forma increase
was attributable to sales generated by metal coatings and
automotive products operations acquired in the second half of
1995.
Sales of the Aerospace segment were 1% ahead of 1995.
Sales for the earlier year included $97.3 million from Kollsman,
a division divested in December 1995. The two operations
continuing in the segment recorded solid sales gains in 1996.
Gas Turbine posted a 16% sales increase in 1996, with units
serving both repair and OEM customers contributing to the
advance. At the repair units, commercial airline and US
Government military repair business was significantly ahead of
prior year levels, due to the continuing recovery in the domestic
and international airline industry, as well as increased market
penetration. Pricing to the OEM market improved, as capacity
utilization rates in the industry increased substantially. ARC
Propulsion registered an 11% increase in sales for 1996, driven
by improvements in airbag components and liquid propellant motors
for use on commercial satellites as the unit's sales mix shifted
toward commercial applications.
Sales in the Machinery and Metal Coatings segment
increased 12% in 1996, with each of the three units recording
advances. Sales of the metal coatings unit reflected the
addition of three coil coating lines acquired in 1995, as well as
strong demand from the building products market and continued
expansion into other markets. The favorable impact of these
factors was tempered by the effect of a major container
customer's late-1995 decision to bring a large portion of its
metal coating work in house. The can machinery unit achieved a
solid advance in 1996, with increased sales of both equipment and
spare parts. Sales of the auxiliary press equipment unit
advanced 6% in 1996, with sharply higher sales of flying pasters
partially offset by lower sales of dryers and other auxiliary
equipment.
Sales of the Specialty Chemicals segment decreased 10%
in 1996, as a small increase at the domestic unit was more than
offset by a decline at the overseas unit. The decline at the
overseas unit reflected lower sales to the international
detergent sector; the absence of sales from a unit that was
divested in mid-1995; and reduced sales at the chemical
distribution units. The domestic unit recorded a small sales
increase, derived from advances in specialty polymers and graphic
arts chemicals, partially offset by a decline in exports.
<PAGE>
SALES (con't)
Sales of the Other Products segment increased 33% in
1996, with the automotive products unit and the can lid operation
recording strong gains, and the real estate operation recording
lower revenues. The automotive products unit benefitted from the
December 1995 addition of an Italian cigarette lighter line
serving European OEMs and from increases in all domestic OEM
products and strong aftermarket sales. Sales of the can lid unit
increased sharply, as exports more than tripled from 1995, and
domestic sales recorded a strong advance. The real estate unit
recorded lower revenues, primarily due to the July 1996
disposition of its largest property, an office building in
Clayton, Missouri.
OPERATING INCOME
Operating income declined 4% in 1996, due to the following
principal factors: the high level of expense related to the
Company's litigation with the Pratt & Whitney unit of United
Technologies Corporation (UTC); the absence of profits from the
Kollsman division, which was divested in December 1995; and lower
profits at the overseas specialty chemicals unit and the metal
coatings unit. These factors were partially offset by the return
to profitability of the gas turbine unit and improvement in the
Other Products segment.
Operating income in the Aerospace segment advanced 54%
in 1996, despite the December 1995 sale of the Kollsman unit,
which had contributed $12.9 million to the 1995 reported profits.
Gas Turbine, which had incurred a loss in 1995, posted a profit
on higher sales in 1996. The turnaround at Gas Turbine reflected
significant improvement at repair units, reduced losses at OEM
units, the absence of the downsizing provisions recorded in 1995,
and the effect of earlier efforts to reduce the overall cost
structure. These improvements were partially offset by $33.0
million of costs related to the UTC litigation. Both years
benefitted from the reversal of workers' compensation insurance
reserves, which were actuarially determined to be in excess of
requirements. The propulsion unit registered a small decline in
profits in 1996, due entirely to a fourth-quarter restructuring
provision related to the advanced materials product line.
Without this provision, profits would have advanced, due to the
benefit of increased sales and lower bid and proposal costs.
Operating income in the Machinery and Metal Coatings
segment declined 16% in 1996, as the advance at the can machinery
unit was more than offset by declines at the metal coatings and
auxiliary press equipment units. The decline in operating income
<PAGE>
OPERATING INCOME (con't)
at the metal coatings unit primarily reflected lower average
coating line utilization; increased costs related to the three
coating lines acquired in 1995; and substantially higher prices
for the natural gas used in the curing ovens. Can machinery
profits advanced in 1996, driven primarily by the increased level
of sales. The auxiliary press equipment unit incurred a larger
loss in 1996, due to restructuring expense of more than $2.5
million and the write-off of the remaining goodwill related to
this operation. On an operating basis, excluding these costs,
the benefit of increased sales and reduced costs more than offset
the impact of a significant increase in the allowance for
doubtful accounts, continuing pricing pressures, and higher
warranty expense.
Operating income of the Specialty Chemicals segment
declined 14% in 1996, as a decline at the overseas unit was
partially offset by a solid gain at the domestic unit. The
decline at the overseas unit reflected lower sales of detergent
chemicals, reduced margins, and reduced profits from the chemical
distribution units. The domestic unit recorded a solid profit
advance, due to a favorable sales mix shift, improved margins,
and the favorable settlement of a lawsuit.
Operating income in the Other Products segment increased
53% in 1996, as improvements at the automotive products and can
lid operations more than offset a decline at the real estate
unit. The improvement at the automotive products unit was the
result of increased worldwide sales. The can lid unit recorded a
loss in 1995 and a profit in 1996, with the improvement primarily
attributable to a sharply higher level of sales. Profits at the
real estate operation declined in 1996 due to reduced revenues.
INTEREST EXPENSE
The decrease in interest expense of approximately $1.5 million
was due to a decrease in average borrowings attributable to
scheduled principal payments and early retirement of debt.
EQUITY IN INCOME (LOSS) OF UNCONSOLIDATED JOINT VENTURES
The Company's share of the earnings or losses of the
unconsolidated airbag businesses was equity income of $1.4
million in 1996 and an equity loss of $2.2 million in 1995. The
Company's equity share of the earnings of ACT was income of $3.2
million in 1996 and $0.8 million in 1995.
<PAGE>
OTHER, NET
In 1996, Other, net included gains on the sale of property, plant
and equipment of $8.3 million; letters of credit and commitment
fees of $2.0 million; and $2.1 million in charges for the
amortization of capitalized debt costs.
In 1995, Other, net included a $6.5 million gain on the
sale of Kollsman; $7.3 million of gains on the sale of assets;
$2.1 million of dividend income on an investment; letters of
credit and commitment fees of $2.7 million; and $2.1 million of
charges for the amortization of capitalized debt costs.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
- -------- -----------------------------------------------------
RISK
----
See discussion appearing on page 22 of this Annual
Report on Form 10-K under the heading "Derivative Financial
Instruments, "which is hereby incorporated by reference.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Shareholders and
the Board of Directors of
Sequa Corporation:
We have audited the accompanying consolidated balance sheet
of Sequa Corporation (a Delaware corporation) and subsidiaries as
of December 31, 1997 and 1996, and the related consolidated
statements of income, cash flows and shareholders' equity for
each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Sequa Corporation and subsidiaries as of December 31, 1997 and
1996, and the results of their operations and their cash flows
for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
New York, New York
February 23, 1998
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEET
<CAPTION>
(Amounts in thousands)
At December 31, 1997 1996
- ------------------------ ---------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 93,743 $ 92,079
Short-term investments (Note 2) 25,000 -
Trade receivables (less allowances
of $15,816 and $12,992) 282,602 248,835
Unbilled receivables, net (Note 3) 27,777 26,771
Inventories (Note 4) 246,449 223,498
Other current assets 20,272 20,994
--------- ---------
Total current assets 695,843 612,177
--------- ---------
INVESTMENTS
Net assets of discontinued operations
(Note 5) 109,723 130,193
Other investments 24,217 20,492
--------- ---------
133,940 150,685
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, NET
(Note 6) 435,480 457,511
--------- ---------
OTHER ASSETS
Excess of cost over net assets of
companies acquired 305,540 307,952
Deferred charges and other 20,872 19,837
--------- ---------
326,412 327,789
--------- ---------
TOTAL ASSETS $1,591,675 $1,548,162
========== ==========
<FN>
The accompanying notes are an integral part of the financial
statements.
</TABLE>
<PAGE>
<TABLE>
SEQUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<CAPTION>
(Amounts in thousands, except share data)
At December 31, 1997 1996
- ----------------------------------------- -------- --------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt
(Note 7) $ 24,510 $ 2,859
Accounts payable 136,003 109,115
Taxes on income (Note 8) 42,370 40,391
Accrued expenses (Note 9) 163,845 150,381
---------- ----------
Total current liabilities 366,728 302,746
---------- ----------
NONCURRENT LIABILITIES
Long-term debt (Note 7) 508,735 531,868
Deferred taxes on income (Note 8) 19,078 13,652
Other noncurrent liabilities 102,740 109,120
---------- ----------
630,553 654,640
---------- ----------
SHAREHOLDERS' EQUITY (Notes 7, 12 and 13)
Preferred stock--$1 par value,
1,825,000 shares authorized; 797,000
shares of $5 cumulative convertible
stock issued at December 31, 1997
and 1996 (involuntary liquidation
value--$25,393 at December 31, 1997) 797 797
Class A common stock--no par value,
25,000,000 shares authorized; 7,188,000
shares issued at December 31, 1997 and
1996 7,188 7,188
Class B common stock--no par value,
5,000,000 shares authorized; 3,727,000
shares issued at December 31, 1997
and 1996 3,727 3,727
Capital in excess of par value 283,339 285,912
Cumulative translation adjustment (6,794) 10,512
Retained earnings 382,945 366,369
---------- ----------
671,202 674,505
Less: cost of treasury stock 76,808 83,729
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 594,394 590,776
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $1,591,675 $1,548,162
========== ==========
</TABLE>
<PAGE>
<TABLE>
SEQUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
(Amounts in thousands, except per share)
Year ended December 31, 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
SALES $1,595,125 $1,459,029 $1,414,139
---------- ---------- ----------
COSTS AND EXPENSES
Cost of sales 1,285,829 1,160,192 1,129,955
Selling, general and administrative 224,589 233,679 216,257
---------- ---------- ----------
1,510,418 1,393,871 1,346,212
---------- ---------- ----------
OPERATING INCOME 84,707 65,158 67,927
OTHER INCOME (EXPENSE)
Interest expense (50,298) (51,794) (53,302)
Interest income 6,052 4,271 3,870
Equity in income (loss) of
unconsolidated joint ventures 223 4,038 (1,774)
Other, net (Note 15) 1,143 4,283 10,758
---------- ---------- ----------
(42,880) (39,202) (40,448)
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 41,827 25,956 27,479
Income tax provision (Note 8) (22,200) (16,400) (18,700)
---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM 19,627 9,556 8,779
Extraordinary loss on early retirement
of debt, net of applicable income
taxes (Note 7) - (369) -
---------- ---------- ----------
NET INCOME 19,627 9,187 8,779
Preferred dividends (3,051) (3,108) (3,165)
---------- ---------- ----------
NET INCOME APPLICABLE TO COMMON
STOCK $ 16,576 $ 6,079 $ 5,614
========== ========== ==========
BASIC AND DILUTED EARNINGS PER SHARE
Income before extraordinary item $ 1.66 $ .65 $ .57
Extraordinary loss - (.04) -
---------- ---------- ----------
Net income $ 1.66 $ .61 $ .57
========== ========== ==========
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
SEQUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
(Amounts in thousands)
Year ended December 31, 1997 1996 1995
- ----------------------- -------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income taxes $ 41,827 $ 25,956 $ 27,479
Adjustments to reconcile income to
net cash provided by operating activities:
Depreciation and amortization 85,815 91,587 96,485
Provision for losses on receivables 8,316 5,927 4,694
Gain on sale of assets (2,465) (8,268) (13,771)
Equity in (income) loss of unconsolidated
joint ventures (223) (4,038) 1,774
Other items not requiring (providing) cash (2,008) 129 809
Changes in operating assets and liabilities,
net of businesses acquired and sold:
Receivables (23,088) (3,208) (5,272)
Inventories (15,783) 15,788 (11,408)
Other current assets 156 14,808 (5,878)
Accounts payable and accrued expenses 25,836 (4,984) (2,691)
Other noncurrent liabilities (8,404) (28,802) (9,017)
--------- --------- --------
Net cash provided by continuing operations
before income taxes 109,979 104,895 83,204
Net cash provided by discontinued operations
before income taxes 3,929 6,970 5,621
Income taxes paid, net (13,358) (6,057) (6,565)
--------- --------- --------
Net cash provided by operating activities 100,550 105,808 82,260
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (68,960) (50,228) (56,899)
Sale of property, plant and equipment 8,511 15,475 9,122
Sale of businesses, net of cash sold 28,178 1,558 57,580
Businesses purchased, net of cash acquired (36,058) - (42,659)
Short-term investments (25,000) - -
Other investing activities (1,228) (806) (2,254)
--------- --------- --------
Net cash used for investing activities (94,557) (34,001) (35,110)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt 2,275 512 3,392
Payments of debt (3,312) (16,833) (8,979)
Early retirement of debt - (27,900) -
Dividends paid (3,051) (3,108) (3,165)
Proceeds from exercise of stock options 3,226 1,474 -
Purchase of treasury stock - (1,680) -
Proceeds from joint venture financing
arrangement - - 7,500
--------- --------- --------
Net cash used for financing activities (862) (47,535) (1,252)
--------- --------- --------
Effect of exchange rate changes on cash
and cash equivalents (3,467) 5,140 (1,886)
--------- --------- --------
Net increase in cash and cash equivalents 1,664 29,412 44,012
Cash and cash equivalents at beginning of year 92,079 62,667 18,655
--------- --------- --------
Cash and cash equivalents at end of year $ 93,743 $ 92,079 $ 62,667
========= ========= ========
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
SEQUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<CAPTION>
Class A Class B Capital in Cumulative
(Amounts in thousands, Preferred Common Common Excess of Translation Retained Treasury
except per share data) Stock Stock Stock Par Value Adjustment Earnings Stock
- --------------------- -------- ------- ------- --------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 $ 797 $ 7,188 $3,727 $287,204 $ (1,899) $354,676 $ (85,202)
Net income - - - - - 8,779 -
Foreign currency translation
adjustment - - - - 4,906 - -
Amortization of restricted
stock grant - - - - - - 258
Sale of foreign subsidiary - - - - (674) - -
Cash dividends:
Preferred - $5.00 per share - - - - - (3,165) -
------- ------- ------ -------- -------- -------- ---------
BALANCE AT DECEMBER 31, 1995 797 7,188 3,727 287,204 2,333 360,290 (84,944)
Net income - - - - - 9,187 -
Foreign currency translation
adjustment - - - - 8,179 - -
Amortization of restricted
stock grant - - - - - - 223
Stock grants forfeited - - - 307 - - (401)
Stock options exercised - - - (1,599) - - 3,073
Purchase of treasury stock - - - - - - (1,680)
Cash dividends:
Preferred - $5.00 per share - - - - - (3,108) -
------- ------- ------ -------- -------- -------- ---------
BALANCE AT DECEMBER 31, 1996 797 7,188 3,727 285,912 10,512 366,369 (83,729)
Net income - - - - - 19,627 -
Foreign currency translation
adjustment - - - - (17,306) - -
Amortization of restricted
stock grant - - - - - - 165
Stock grants forfeited - - - 46 - - (71)
Stock options exercised - - - (3,601) - - 6,827
Tax benefits on stock
options and grants - - - 982 - - -
Cash dividends:
Preferred - $5.00 per share - - - - - (3,051) -
------- ------- ------ -------- -------- -------- ---------
BALANCE AT DECEMBER 31, 1997 $ 797 $ 7,188 $3,727 $283,339 $ (6,794) $382,945 $ (76,808)
======= ======= ====== ======== ======== ======== =========
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
SEQUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements of Sequa Corporation (the
Company) include the accounts of all majority-owned subsidiaries.
Investments in 20% to 50% owned joint ventures are accounted for
on the equity method. All material accounts and transactions
between the consolidated subsidiaries have been eliminated in
consolidation. Certain prior year amounts have been reclassified
to conform to 1997 presentation.
The Company made a decision not to sell the men's apparel
unit. Accordingly, as of January 1, 1997, this unit has been
reclassified from discontinued operations to continuing
operations in the Consolidated Balance Sheet and Statements of
Income and Cash Flows. Prior years' results of operations were
not restated due to immateriality.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of the Consolidated Statement of Cash Flows, the
Company considers time deposits, certificates of deposit and
marketable securities with original maturities of three months or
less to be cash equivalents. Where the right of set-off exists,
the Company has netted overdrafts with unrestricted cash and cash
equivalents.
INVENTORIES AND CONTRACT ACCOUNTING
Inventories are stated at the lower of cost or market. As of
December 31, 1996, the Company's non-contract inventories were
valued primarily on a first-in, first-out (FIFO) basis. During
1997, the Company changed its basis of those inventories formerly
valued using the LIFO method to the FIFO method to conform all
non-contract inventories to the same method of valuation. The
effect of the accounting change, which was immaterial, was
recorded as a reduction of cost of sales in the third quarter of
1997 and previously reported results of operations were not
restated. Inventoried costs relating to long-term contracts are
stated at actual or average costs, including engineering and
manufacturing labor and related overhead incurred, reduced by
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (con't)
INVENTORIES AND CONTRACT ACCOUNTING (con't)
amounts identified with sales. The costs attributable to sales
reflect the estimated costs of all items to be produced under the
related contract.
PROPERTY, PLANT AND EQUIPMENT
For financial reporting purposes, depreciation and amortization
are computed using the straight-line method to amortize the cost
of assets over their estimated useful lives. Accelerated
depreciation methods are used for income tax purposes.
The Company reviews properties for impairment whenever events
or changes in circumstances indicate that the carrying value of
an asset may not be fully recoverable. If the estimated future
cash flows expected to result from the use of an asset and its
eventual disposition are less than the carrying amount of the
asset, then the property is written down to its fair market
value.
Upon sale or retirement of properties, the related cost and
accumulated depreciation are removed from the accounts, and any
gain or loss is reflected currently. Expenditures for
maintenance and repairs of $50,862,000 in 1997, $45,030,000 in
1996 and $42,534,000 in 1995 were expensed as incurred, while
betterments and replacements were capitalized.
EXCESS OF COST OVER NET ASSETS OF COMPANIES ACQUIRED
Excess of cost over net assets of companies acquired (goodwill)
is being amortized on a straight-line basis over periods not
exceeding forty years. The recoverability of goodwill is
evaluated at the operating unit level by an analysis of operating
results and consideration of other significant events or changes
in the business environment. If an operating unit has current
operating losses, and based upon projections there is a
likelihood that such operating losses will continue, the Company
evaluates whether impairment exists on the basis of undiscounted
expected future cash flows from operations before interest during
the remaining amortization period. If impairment exists, the
carrying amount of the goodwill is reduced to market value. In
connection with the Company's impairment review, goodwill was
written down by $830,000 during 1996. Amortization and
writedowns charged against earnings in 1997, 1996 and 1995 were
$10,919,000, $11,337,000 and $10,716,000, respectively.
Accumulated amortization at December 31, 1997 and 1996 was
$116,974,000 and $106,055,000, respectively.
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (con't)
FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of the Company's
foreign subsidiaries are measured using local currency as the
functional currency. Assets and liabilities of operations
denominated in foreign currencies are translated into US dollars
at exchange rates in effect at year-end, while revenues and
expenses are translated at weighted average exchange rates
prevailing during the year. The resulting translation gains and
losses are charged or credited directly to cumulative translation
adjustment, a component of shareholders' equity, and are not
included in net income until realized through sale or liquidation
of the investment. Foreign exchange gains and losses incurred on
foreign currency transactions are included in net income.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are utilized by the Company to
manage foreign exchange risks. The Company has established a
control environment which includes policies and procedures for
risk assessment and the approval, reporting and monitoring of
derivative financial instrument activities. The Company does not
hold or issue derivative financial instruments for trading
purposes.
Gains and losses on forward exchange contracts designated as
hedges of existing assets and liabilities and anticipated
transactions are recognized in income as exchange rates change.
Gains and losses on forward exchange contracts that hedge firm
commitments are deferred and included in the basis of the
transactions when they are completed. Gains or losses on forward
foreign exchange contracts that hedge foreign investments are not
included in income but are recorded in cumulative translation
adjustment, a component of shareholders' equity.
The cost of foreign currency options purchased to hedge
anticipated transactions are amortized to expense on a straight-
line basis over the life of the option. Gains or losses on
purchased options are deferred and included in the basis of the
anticipated transactions if, and when, the options are exercised.
ENVIRONMENTAL REMEDIATION AND COMPLIANCE
It is the Company's policy to accrue environmental remediation
costs for identified sites when it is probable that a liability
has been incurred and the amount of loss can be reasonably
estimated. Accrued environmental remediation and compliance
costs include remedial investigation and feasibility studies,
outside legal, consulting and remediation project management
fees, projected cost of remediation activities, site closure and
post-remediation monitoring costs. At December 31, 1997, the
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (con't)
ENVIRONMENTAL REMEDIATION AND COMPLIANCE (con't)
potential exposure for such costs is estimated to range from
$16,000,000 to $33,000,000 and the Company's balance sheet
includes accruals for remediation costs of $28,651,000. These
accruals are at undiscounted amounts and are included in accrued
expenses and other noncurrent liabilities. While the possibility
of further recovery of some of the costs from insurance companies
exists, the Company does not recognize these recoveries in its
financial statements until they are realized. Actual costs to be
incurred at identified sites in future periods may vary from the
estimates, given inherent uncertainties in evaluating
environmental exposures.
REVENUE RECOGNITION
Generally, sales are recorded when products are shipped or
services are rendered. Long-term contracts are accounted for
under the percentage-of-completion method whereby sales are
primarily recognized based upon costs incurred as a percentage of
estimated total costs, and gross profits are recognized under a
more conservative "efforts-expended" method primarily based upon
direct labor costs incurred as a percentage of estimated total
direct labor costs. Changes in estimates for sales, costs and
gross profits are recognized in the period in which they are
determinable using the cumulative catch-up method. Any
anticipated losses on contracts are charged to current operations
as soon as they are determinable.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred
and amounted to approximately $13,259,000 in 1997, $12,856,000 in
1996 and $15,176,000 in 1995.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," encourages, but does
not require, companies to record compensation cost for stock-
based employee compensation plans at fair value. The Company has
chosen to continue to account for stock-based compensation under
Accounting Principles Board (APB) Opinion No. 25, which measures
compensation cost for stock options as the excess, if any, of the
quoted market price of the Company's stock at the grant date over
the amount an employee must pay to acquire the stock. As the
Company's stock option plans require the option price to be no
less than the fair market value of the stock at the date of
grant, no compensation expense is recognized by the Company for
stock options granted.
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (con't)
INCOME TAXES
Income taxes are recognized during the year in which transactions
enter into the determination of financial statement income, with
deferred taxes being provided for temporary differences between
amounts of assets and liabilities recorded for tax and financial
reporting purposes.
No provision has been made for US or additional foreign taxes
on $216,378,000 of undistributed earnings of foreign subsidiaries
as those earnings are intended to be permanently reinvested.
Such earnings would become taxable upon the sale or liquidation
of these foreign subsidiaries or upon the remittance of
dividends.
EARNINGS PER SHARE
The Company implemented SFAS No. 128, "Earnings per Share," in
the fourth quarter of 1997; accordingly, the earnings per share
amounts for all periods presented have been calculated in
accordance with the new standard.
Basic earnings per share (EPS) for each of the respective
years have been computed by dividing the net earnings, after
deducting dividends on cumulative convertible preferred stock, by
the weighted average number of common shares outstanding during
the year. The weighted average number of common shares for 1997,
1996 and 1995 was 9,967,000 shares, 9,880,000 shares and
9,867,000 shares, respectively.
The computation of diluted EPS is the same as the basic EPS
calculation except that the denominator was increased by 47,000
shares in 1997 and 41,000 shares in 1996 for the dilutive effect
of stock options calculated using the treasury stock method.
Diluted EPS amounts are the same as basic EPS amounts for all
periods; accordingly, dual presentation in the income statement
is not required. Each share of the Company's preferred stock is
convertible into 1.322 shares of common stock; however,
conversion of such shares is antidilutive in all periods
presented when the preferred stock dividends are added back to
the income applicable to common stock.
NOTE 2. SHORT-TERM INVESTMENTS
At December 31, 1997, the $25,000,000 short-term investment
represents the Company's participation in loans made by a group
of banks for the benefit of one of the Company's joint ventures.
This is a vehicle for improving the yield on temporarily
available funds, and does not impact the total amount loaned to
the joint venture.
<PAGE>
<TABLE>
Note 3. Unbilled Receivables, Net
Unbilled receivables, net consist of the following:
<CAPTION>
(Amounts in thousands)
At December 31, 1997 1996
- -------------------------------- ---- ----
<S> <C> <C>
Fixed-price contracts $24,128 $22,640
Cost-reimbursement contracts 3,649 4,131
------- -------
$27,777 $26,771
======= =======
</TABLE>
Unbilled receivables on fixed-price contracts arise as revenues
are recognized under the percentage-of-completion method. These
amounts are billable at specified dates, when deliveries are made
or at contract completion, which is expected to occur within one
year. All amounts included in unbilled receivables are related
to long-term contracts and are reduced by appropriate progress
billings.
Unbilled amounts on cost-reimbursement contracts represent
recoverable costs and accrued profits not yet billed. These
amounts are billable upon receipt of contract funding, final
settlement of indirect expense rates, or contract completion.
Allowances for estimated nonrecoverable costs are primarily
to provide for losses which may be sustained on contract costs
awaiting funding and for the finalization of indirect expenses.
Unbilled amounts at December 31, 1997 and 1996 are reduced by
allowances for estimated nonrecoverable costs of $2,073,000 and
$2,587,000, respectively.
NOTE 4. INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
(Amounts in thousands)
At December 31, 1997 1996
- --------------------- ---- ----
<S> <C> <C>
Finished goods $ 68,570 $ 61,276
Work in process 89,442 71,583
Raw materials 89,579 89,254
Long-term contract costs 11,599 8,275
Customer deposits (12,741) (6,890)
-------- --------
$246,449 $223,498
======== ========
</TABLE>
NOTE 5. NET ASSETS OF DISCONTINUED OPERATIONS
During 1991, the Company adopted a formal plan to divest Sequa
Capital's investment portfolio and to sell a group of businesses
which it classified as discontinued operations. As of December
31, 1997, approximately $361,000,000 of Sequa Capital's
<PAGE>
NOTE 5. NET ASSETS OF DISCONTINUED OPERATIONS (con't)
investment portfolio had been sold, written down or otherwise
disposed of since the Company adopted a formal plan to divest the
portfolio. During the same period, the Company repaid
approximately $367,000,000 of Sequa Capital's debt. Debt of
discontinued operations at December 31, 1997 represents the
accreted principal amount of the $25,000,000 in proceeds received
from the non-recourse securitization of Sequa Capital's leveraged
lease portfolio in 1994. The leveraged lease cash flow stream
will service the payment of principal and interest until the loan
is paid off. To the extent that the leveraged lease cash flow
stream during the next several years is less than the amount
necessary to service the debt, the loan will increase.
Subsequent to the payment of the secured indebtedness, the
remaining investment in leveraged leases will be liquidated over
time as rentals are received and residual values are realized.
Disposal activities are ongoing for Sequa Capital's other
investments.
Net assets of discontinued operations approximate net
realizable value and have been classified as noncurrent. The
amounts the Company will ultimately realize from the leveraged
lease portfolio and other investments could differ materially
from management's best estimates of their realizable value. A
summary of the net assets of discontinued operations follows:
<TABLE>
<CAPTION>
(Amounts in thousands)
At December 31, 1997 1996
- ----------------------------- ------ ------
<S> <C> <C>
Investment in leveraged leases and
other investments $144,292 $148,778
Other assets, net 445 13,374
Debt (35,014) (31,959)
-------- --------
Net assets of discontinued operations $109,723 $130,193
======== ========
</TABLE>
NOTE 6. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consists of the following:
<TABLE>
<CAPTION>
(Amounts in thousands)
At December 31, 1997 1996
- ----------------------------- ------ ------
<S> <C> <C>
Land and improvements $ 43,580 $ 48,185
Buildings and improvements 225,161 216,146
Machinery and equipment 751,364 756,673
Construction in progress 30,097 29,900
---------- ----------
1,050,202 1,050,904
Accumulated depreciation (614,722) (593,393)
---------- ----------
$ 435,480 $ 457,511
========== ==========
</TABLE>
<PAGE>
NOTE 7. INDEBTEDNESS
Long-term debt is as follows:
<TABLE>
<CAPTION>
(Amounts in thousands)
At December 31, 1997 1996
- ------------------------------- ---- ----
<S> <C> <C>
Senior unsecured notes, at 9 5/8%,
due 1999 $138,519 $138,519
Senior unsecured notes, at 8 3/4%, due 2001 109,948 109,948
Medium-term notes, at a weighted average
interest rate of 10.0%, payable in varying
amounts through 2001 86,275 86,275
Senior subordinated notes, at 9 3/8%,
due 2003 175,000 175,000
Capital lease obligations, at weighted
average interest rates of 8.6% and 9.3%,
respectively, payable in varying amounts
through 2000 14,438 17,818
Other, at weighted average interest rates of
6.3% and 5.4%, respectively, payable in
varying amounts through 2004 9,065 7,167
-------- --------
533,245 534,727
Less current maturities (24,510) (2,859)
-------- --------
Total long-term debt $508,735 $531,868
======== ========
</TABLE>
In October 1997, the Company entered into a new $150,000,000
revolving credit agreement with a group of banks that extends
through October 2002. This agreement replaced an existing
revolving credit agreement, which was due to expire in March
1998. The rate of interest payable under the new agreement is,
at the Company's option, a function of the prime rate or the
Eurodollar rate. The agreement requires the Company to pay a
commitment fee, which is subject to adjustment based upon the
ratio of debt to EBITDA (earnings before interest, taxes,
depreciation and amortization), at an initial annual rate of
.275% of the unutilized amount available under the credit line.
At December 31, 1997, there were no borrowings outstanding under
this facility; however, $5,259,000 of the available credit line
was designated for the issuance of letters of credit leaving
$144,741,000 of unused credit available.
<PAGE>
NOTE 7. INDEBTEDNESS (con't)
In 1996, the Company recognized a $369,000 extraordinary loss as
a result of the early redemption of debt in the principal amount
of $27,608,000. The extraordinary loss consisted of the write-
off of the associated debt issue costs plus premiums associated
with the redemption, net of income tax benefits of $199,000.
The aggregate maturities of total long-term debt during the
next five years are $24,510,000 in 1998, $146,178,000 in 1999,
$4,960,000 in 2000, $176,298,000 in 2001 and $0 in 2002.
The Company's loan agreements and indentures contain
covenants which, among other matters, limit the ability of the
Company to pay dividends, incur indebtedness, make capital
expenditures, repurchase common and preferred stock, and
repurchase the 9 3/8% senior subordinated notes due 2003. The
Company must also maintain a minimum net worth and certain ratios
regarding interest coverage and debt to EBITDA, among other
restrictions.
NOTE 8. INCOME TAXES
The components of income (loss) before income taxes were:
<TABLE>
<CAPTION>
(Amounts in thousands)
Year ended December 31, 1997 1996 1995
- ----------------------------- ---- ---- ----
<S> <C> <C> <C>
Domestic $ 17,863 $ (5,097) $(12,600)
Foreign 23,964 31,053 40,079
-------- -------- --------
$ 41,827 $ 25,956 $ 27,479
======== ======== ========
</TABLE>
The income tax provision (benefit) consisted of:
<TABLE>
<CAPTION>
(Amounts in thousands)
Year ended December 31, 1997 1996 1995
- --------------------------- ---- ---- ----
<S> <C> <C> <C>
United States Federal
Current $ 142 $ (374) $ 144
Deferred 9,283 3,087 (3,251)
State and local 1,569 1,128 5,508
Foreign 11,206 12,559 16,299
-------- -------- --------
$ 22,200 $ 16,400 $ 18,700
======== ======== ========
</TABLE>
<PAGE>
NOTE 8. INCOME TAXES (con't)
The income tax provision is different from the amount computed by
applying the US Federal statutory income tax rate of 35% to
income before income taxes. The reasons for this difference are
as follows:
<TABLE>
<CAPTION>
(Amounts in thousands)
Year ended December 31, 1997 1996 1995
- ---------------------------- ---- ---- ----
<S> <C> <C> <C>
Computed income taxes at statutory
rate $ 14,639 $ 9,085 $ 9,618
State and local taxes, net of
Federal income tax benefit 1,020 733 3,580
Goodwill amortization 3,424 3,691 4,741
Benefit from Foreign Sales
Corporations - - (1,296)
Foreign subsidiaries at different
tax rates (1,370) (410) (835)
Foreign losses not benefitted 4,189 2,100 3,106
Other, net 298 1,201 (214)
------- -------- --------
$22,200 $ 16,400 $ 18,700
======= ======== ========
</TABLE>
The deferred tax provision represents the change in deferred
tax liabilities and assets from the beginning of the year to the
end of the year resulting from changes in the temporary
differences between the financial reporting basis and the tax
basis of the Company's assets and liabilities.
<PAGE>
NOTE 8. INCOME TAXES (con't)
Temporary differences and carryforwards which gave rise to
deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
(Amounts in thousands)
At December 31, 1997
- ------------------------- ---------------------
Deferred Deferred
Tax Tax
Assets Liabilities
---------- -----------
<S> <C> <C>
Accounts receivable allowances $ 3,184 $ -
Inventory valuation differences 21,975 6,408
Recognition of income on
long-term contracts 3,754 5,697
Depreciation 11,181 49,909
Lease and finance transactions - 124,639
Accruals not currently deductible
for tax purposes 78,755 -
Tax net operating loss carryforward 74,275 -
Alternative minimum tax (AMT)
credit carryforward 20,680 -
Other tax credit carryforwards 10,681 -
All other 19,573 15,065
-------- --------
Subtotal 244,058 201,718
Valuation allowance (9,409) -
-------- --------
Total deferred taxes $234,649 $201,718
======== ========
</TABLE>
<TABLE>
<CAPTION>
(Amounts in thousands)
At December 31, 1996
- ------------------------ ---------------------
Deferred Deferred
Tax Tax
Assets Liabilities
<S> <C> <C>
Accounts receivable allowances $ 2,990 $ -
Inventory valuation differences 21,083 6,330
Recognition of income on
long-term contracts 4,196 6,285
Depreciation 11,982 54,909
Lease and finance transactions - 125,503
Accruals not currently deductible
for tax purposes 88,171 -
Tax net operating loss carryforward 81,433 -
Tax capital loss carryforward 319 -
Alternative minimum tax (AMT)
credit carryforward 23,094 -
Other tax credit carryforwards 11,667 -
All other 18,011 16,126
-------- --------
Subtotal 262,946 209,153
Valuation allowance (11,476) -
-------- --------
Total deferred taxes $251,470 $209,153
======== ========
</TABLE>
<PAGE>
NOTE 8. INCOME TAXES (con't)
The Company has a potential issue with the Internal Revenue
Service involving the 1989 restructuring of two subsidiaries. At
December 31, 1997, the amount involved, including interest from
the date of the resulting tax refund, was approximately
$75,000,000. While management believes its tax position in this
matter is appropriate, it has taken the conservative position of
providing reserves to cover an adverse outcome.
At December 31, 1997, net current deferred tax assets of
$52,009,000 are netted against $94,379,000 of current taxes
payable and net noncurrent deferred tax liabilities of
$19,078,000 are presented as a single amount in the Consolidated
Balance Sheet. At December 31, 1996, net current deferred tax
assets of $55,969,000 are netted against $96,360,000 of current
taxes payable and net noncurrent deferred tax liabilities of
$13,652,000 are presented as a single amount in the Consolidated
Balance Sheet.
A valuation allowance has been established to reduce the
deferred tax asset recorded for certain tax credits which may
expire unutilized in 1998 through 2011 and to reduce the tax
benefit recorded for a portion of the cumulative losses of the
Company's French subsidiaries. The AMT credit carryforward does
not expire and can be carried forward indefinitely. The Company
has a domestic tax net operating loss carryforward of
$212,215,000 at December 31, 1997 that expires in 2006 through
2011.
Although the Company has experienced book and tax domestic
losses prior to 1997, the Company has returned to domestic
profitability and management believes that domestic net operating
loss carryforwards will be utilized before their expiration
through future reversals of existing taxable temporary
differences and future earnings. The domestic losses were
largely attributable to loss provisions recorded during 1991 and
1992 for the Company's discontinued leasing unit and operating
losses incurred by Gas Turbine from 1993 through 1995. The
Company has divested itself of a significant portion of Sequa
Capital's assets and has decreased interest expense by
significantly reducing debt levels. In addition, despite costs
related to litigation with United Technologies Corporation, Gas
Turbine was profitable during 1996 and 1997 due to rising demand
from the commercial airline markets for jet engine component
repair and increased demand from the manufacturers of jet
engines.
The Company's ability to generate the expected amounts of
domestic taxable income from future operations is dependent upon
general economic conditions, the state of the airline industry
and other major markets, competitive pressures on sales and
<PAGE>
NOTE 8. INCOME TAXES (con't)
margins, and other factors beyond management's control. There
can be no assurance that the Company will meet its expectations
for future domestic taxable income in the carryforward period;
however, management has considered the above factors in reaching
the conclusion that it is more likely than not that future
domestic taxable income will be sufficient to fully realize the
net domestic deferred tax assets at December 31, 1997. The
amount of the deferred tax assets considered realizable, however,
could be reduced in the near term if estimates of future domestic
taxable income during the carryforward period are reduced.
NOTE 9. ACCRUED EXPENSES
The Company's accrued expenses consist of the following items:
<TABLE>
<CAPTION>
(Amounts in thousands)
At December 31, 1997 1996
- ------------------------------ ---- ----
<S> <C> <C>
Salaries and wages $ 42,997 $ 38,179
Current portion of environmental
liabilities 10,000 10,000
Current portion of self-insurance
liabilities 5,500 5,100
Current portion of pension liabilities 1,625 1,633
Warranty 14,315 6,371
Customer rebates 10,036 8,470
Legal fees 4,508 8,413
Royalties 7,964 5,704
Interest 5,590 5,642
Insurance 5,435 5,912
Taxes other than income 4,164 4,133
Other 51,711 50,824
-------- --------
$163,845 $150,381
======== ========
</TABLE>
NOTE 10. FINANCIAL INSTRUMENTS
The Company utilizes forward foreign exchange contracts and
purchased foreign currency options to reduce exposure to foreign
currency fluctuations on existing assets and liabilities, firm
commitments and anticipated transactions. The Company's
accounting policies with respect to these financial instruments
are described in Note 1. At December 31, 1997 and 1996, the
Company had forward foreign exchange contracts outstanding with
notional amounts of $22,511,000 and $30,644,000, respectively.
<PAGE>
NOTE 10. FINANCIAL INSTRUMENTS (con't)
The following table presents the carrying amounts and fair
values of the Company's financial instruments:
<TABLE>
<CAPTION>
(Amounts in thousands)
At December 31, 1997 1996
------------ ------------
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Assets
Forward foreign exchange
contracts $ 309 $ 309 $ 1,129 $ 2,795
Liabilities
Current and long-term
debt 533,245 552,664 534,727 544,424
Forward foreign exchange
contracts 192 192 - -
</TABLE>
The fair value of the Company's debt is primarily based upon
quoted market prices of the Company's publicly traded debt
securities. The fair value of forward foreign exchange contracts
is based on year-end exchange rates.
At December 31, 1997, the Company was contingently liable for
outstanding letters of credit, not reflected in the accompanying
consolidated financial statements, in the aggregate amount of
$45,831,000. The Company is not currently aware of any existing
conditions which would cause risk of loss relative to outstanding
letters of credit. The Company was also contingently liable at
December 31, 1997 for $25,000,000 in guarantees of debt owed by
BAICO, one of the Company's unconsolidated joint ventures. In
January 1998, the Company increased its ownership in BAICO to
100% and BAICO's debt was repaid.
<PAGE>
NOTE 11. PENSION PLANS AND POSTRETIREMENT BENEFITS
The Company sponsors various noncontributory defined benefit
pension plans covering certain hourly and most salaried
employees. The defined benefit plans provide benefits based
primarily on the participant's years of service and compensation.
The Company's pension plans are funded to accumulate sufficient
assets to provide for accrued benefits.
The status of all the Company's significant funded domestic
and foreign defined benefit plans was as follows:
<TABLE>
<CAPTION>
(Amounts in thousands)
At December 31,
1997 1996
<S> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation $243,323 $217,738
Accumulated benefit obligation 248,252 221,543
Projected benefit obligation 265,442 235,851
Plan assets at fair value 292,085 239,633
-------- -------
Excess of assets over projected
benefit obligation 26,643 3,782
Unrecognized net transition asset (2,469) (3,147)
Unrecognized prior service cost 4,063 3,750
Unrecognized net (gain) loss (23,572) 1,306
-------- -------
Prepaid pension cost $ 4,665 $ 5,691
======== =======
Included in:
Deferred charges $ 8,846 $ 7,433
Accrued expenses ( 1,625) (1,633)
Other noncurrent liabilities (2,556) (109)
-------- -------
Prepaid pension cost $ 4,665 $ 5,691
======== =======
</TABLE>
At December 31, 1997 and 1996, plan assets exceeded the
accumulated benefit obligation for each and every funded defined
benefit plan aggregated above. The plans' assets consist
primarily of listed common stock, pooled equity funds, index
funds, debt instruments and real estate funds. At December 31,
1997 and 1996, the plans' assets included Company stock with
market values of $34,889,000 and $21,051,000, respectively.
<PAGE>
NOTE 11. PENSION PLANS AND POSTRETIREMENT BENEFITS (con't)
Assumptions used in accounting for all the Company's significant
funded domestic and foreign defined benefit plans were:
<TABLE>
<CAPTION>
At December 31, 1997 1996 1995
- ----------------- ---- ---- ----
<S> <C> <C> <C>
Discount rate for obligations 7.25% 7.5% 7.5%
Rate of increase in compensation levels 4.5% 4.5% 4.5%
Expected long-term rate of return on
plan assets 9.0% 9.0% 9.0%
</TABLE>
The periodic net pension cost of all the Company's significant
funded domestic and foreign defined benefit plans includes the
following components:
<TABLE>
<CAPTION>
(Amounts in thousands)
Year ended December 31, 1997 1996 1995
- --------------------------- ---- ---- ----
<S> <C> <C> <C>
Service cost for benefits earned $ 7,886 $ 6,886 $ 7,096
Interest cost on projected benefit
obligation 17,966 16,147 14,908
Actual return on plan assets (56,878) (34,918) (22,308)
Net amortization and deferral 35,694 16,739 6,443
------- ------- -------
$ 4,668 $ 4,854 $ 6,139
======= ======= =======
</TABLE>
The net amortization and deferral component of pension cost
includes deferred asset gains of $25,906,000 in 1997, $11,945,000
in 1996 and $7,453,000 in 1995. These unrecognized gains
resulted from actual returns on plan assets exceeding the
expected returns on plan assets. Such deferred gains are subject
to amortization in future periods. Pension expense includes a
curtailment loss of $402,000 in 1997 and a curtailment gain of
$612,000 in 1995.
Employees not covered by the defined benefit plans discussed
above generally are covered by multiemployer plans as part of
collective bargaining agreements or by small local plans.
Pension expense for these multiemployer plans and small local
plans was not significant in the aggregate.
The Company also has several unfunded supplemental executive
retirement plans for certain key executives. These plans provide
for benefits that supplement those provided by the Company's
other retirement plans. At December 31, 1997 and 1996, the
projected benefit obligation for these plans was $15,050,000 and
$11,426,000, respectively, and is included in Other noncurrent
<PAGE>
NOTE 11. PENSION PLANS AND POSTRETIREMENT BENEFITS (con't)
liabilities in the accompanying Consolidated Balance Sheet. The
expense for these plans was $1,321,000 in 1997, $1,948,000 in
1996 and $1,755,000 in 1995.
The Company's domestic non-union employees are eligible to
participate in the Company's 401(k) plans. Expenses recorded for
the Company's matching contributions under these plans were
$4,991,000 in 1997, $4,314,000 in 1996 and $3,542,000 in 1995.
Postretirement health care and other insurance benefits are
provided to certain retirees. The actuarial and recorded
liabilities for these postretirement benefits, none of which have
been funded, are as follows:
<TABLE>
<CAPTION>
(Amounts in thousands)
At December 31, 1997 1996
- --------------------- ------ ------
<S> <C> <C>
Accumulated postretirement benefit
obligation
Retirees $1,345 $ 1,420
Employees fully eligible 447 377
Other active participants 514 734
------ -----
Total 2,306 2,531
Unrecognized prior service cost 1,192 1,288
Unrecognized net loss (1,234) (1,728)
Unrecognized transition obligation (1,162) (1,240)
------ -------
Postretirement benefit liability $1,102 $ 851
====== =======
</TABLE>
Net periodic postretirement benefit cost includes the following
components:
<TABLE>
<CAPTION>
(Amounts in thousands)
Year ended December 31, 1997 1996 1995
- -------------------------- ---- ---- ----
<S> <C> <C> <C>
Service cost for benefits earned $142 $139 $124
Interest cost on accumulated
postretirement benefit obligation 189 223 228
Amortization of net (gain) loss 159 (22) (15)
Amortization of unrecognized prior
service cost (151) 28 -
Amortization of transition obligation 77 154 154
---- ---- ----
Net periodic postretirement benefit
cost $416 $522 $491
==== ==== ====
</TABLE>
The accumulated postretirement benefit obligation was
determined using a discount rate of 7.25% at December 31, 1997
and 7.5% at December 31, 1996 and 1995, and an average health
care cost trend rate of approximately 9% progressively decreasing
to approximately 6% in the year 2006 and thereafter.
<PAGE>
NOTE 11. PENSION PLANS AND POSTRETIREMENT BENEFITS (con't)
Increasing the assumed health care cost trend rates by one
percentage point in each year and holding all other assumptions
constant would increase the accumulated postretirement benefit
obligation as of December 31, 1997 by approximately $123,000 and
increase the aggregate of the service and interest cost
components of the net periodic postretirement benefit cost for
1997 by approximately $21,000.
NOTE 12. CAPITAL STOCK
The Company's capital stock consists of Class A and Class B
common stock and $5.00 cumulative convertible preferred stock.
Holders of Class A common stock have one vote per share, holders
of Class B common stock have ten votes per share, and preferred
stockholders have one vote per share. Holders of Class B common
stock are entitled to convert their shares into Class A common
stock at any time on a share-for-share basis. Each share of
$5.00 cumulative convertible preferred stock is convertible into
1.322 shares of Class A common stock. The preferred stock is
redeemable, at the option of the Company, at $100 per share.
At December 31, 1997, 4,277,442 shares of Sequa Class A
common stock were reserved for the conversion of preferred and
Class B common stock, and for the exercise of outstanding stock
options.
The following table summarizes shares held in treasury:
<TABLE>
<CAPTION>
At December 31, 1997 1996 1995
- -------------------- ---- ---- ----
<S> <C> <C> <C>
Class A common stock 512,643 614,100 652,000
Class B common stock 397,283 396,283 396,283
Preferred stock 186,690 186,690 163,489
</TABLE>
<PAGE>
NOTE 13. STOCK OPTIONS AND GRANTS
The Company has two incentive and nonqualified stock option plans
in effect: the 1986 Stock Option Plan and the 1988 Stock Option
Plan. These plans provide for the granting of options of the
Company's Class A common stock to key employees. The option
price per share may not be less than the fair market value of a
share on the date the option is granted, and the maximum term of
an option may not exceed ten years. Options vest in three equal
annual installments, commencing on the first anniversary of the
grant date. Authority to grant options under the 1986 Stock
Option Plan expired during 1996 and authority to grant options
under the 1988 Stock Option Plan expired January 25, 1998. The
following table summarizes the activity related to the Company's
stock options for the three years ended December 31, 1997:
<TABLE>
<CAPTION>
Weighted
Average
Options Price
------- -----
<S> <C> <C>
OUTSTANDING AT DECEMBER 31, 1994 305,800 $32.60
Granted 12,200 $25.48
Expired or Cancelled (25,000) $33.89
Exercised - -
-------
OUTSTANDING AT DECEMBER 31, 1995 293,000 $32.18
Granted 1,800 $43.40
Expired or Cancelled (16,334) $35.28
Exercised (46,121) $32.33
-------
OUTSTANDING AT DECEMBER 31, 1996 232,345 $32.02
Granted 16,000 $50.38
Expired or Cancelled (3,010) $32.25
Exercised (104,237) $32.31
-------
OUTSTANDING AT DECEMBER 31, 1997 141,098 $33.91
=======
EXERCISABLE AT
December 31, 1995 183,534 $32.62
December 31, 1996 221,578 $32.15
December 31, 1997 120,631 $31.88
</TABLE>
In February 1998, the Board of Directors approved the 1998
Stock Option Plan pursuant to which options for up to 500,000
shares of the Company's Class A common stock may be granted to
key employees. This plan is subject to stockholders' approval at
the Company's annual meeting to be held in May 1998.
Under the provisions of APB Opinion No. 25, the Company has
recognized no compensation expense for stock options granted.
Pro forma compensation expense determined under the fair-value
provisions of SFAS No. 123 is not material due to the
insignificant number of options granted.
<PAGE>
Note 13. Stock Options and Grants (con't)
During 1994, 32,052 shares of the Company's Class A common
stock held in treasury were granted to certain key employees.
Such stock was subject to restrictions which prohibited sale or
transfer by the grantee for periods of three to five years and
required forfeiture by the employee in the event of employment
termination within the restricted periods. The market value of
the shares granted was $831,000 and has been amortized to expense
over the respective periods in which the restrictions lapse. The
charge to operations was $165,000 in 1997, $223,000 in 1996 and
$258,000 in 1995. As of December 31, 1997, the entire original
value of the grant has been reduced to zero through amortization
and employee forfeitures.
NOTE 14. ACQUISITIONS AND DISPOSITIONS
In December 1997, the Company sold Northern Can Systems, a
supplier of metal lids, for cash proceeds of $28,178,000. No
pre-tax gain or loss resulted from the sale. Northern Can
Systems had revenues of $32,904,000, $26,179,000 and $16,664,000
in 1997, 1996 and 1995, respectively, and operating income of
$1,781,000 and $1,005,000 in 1997 and 1996, respectively, and an
operating loss of $720,000 in 1995. The consolidated financial
statements and accompanying notes reflect the operating results
of Northern Can Systems as a continuing operation.
In May 1997, the Company purchased Sedgefield Specialties, a
specialty chemicals supplier to the textile industry, for
$13,853,000. In August 1997, the Company purchased TEC Systems,
a manufacturer of dryers and environmental equipment for paper,
printing and other industrial applications, for $18,839,000.
These acquisitions have been accounted for as purchases;
accordingly, operating results are included in the Consolidated
Statement of Income from the dates of purchase. Pro forma
combined results of operations giving effect to these
acquisitions would not vary materially from historical results.
In December 1995, the Company sold substantially all of the
business and operating assets, excluding billed receivables, of
Kollsman for cash proceeds of $49,612,000. The sale resulted in
a pre-tax gain of $6,461,000 included in Other, net. Kollsman
had revenues of $97,271,000 and operating income of $12,857,000
in 1995. The consolidated financial statements and accompanying
notes reflect the operating results of Kollsman as a continuing
operation in 1995.
In July 1995, the Company purchased two coil coating
operations from Enamel Products and Plating Co. (EP&P) for
$38,258,000. In connection with the acquisition, the Company
entered into an operating lease with a financial institution for
the rental of a metal coating line located at one of the EP&P
<PAGE>
NOTE 14. ACQUISITIONS AND DISPOSITIONS (con't)
facilities. This acquisition has been accounted for as a
purchase; accordingly, operating results are included in the
Consolidated Statement of Income from the date of purchase.
Pro forma combined results of operations giving effect to this
purchase would not vary materially from historical results.
NOTE 15. OTHER, NET
Other, net includes the following income (expense) items:
<TABLE>
<CAPTION>
(Amounts in thousands)
Year ended December 31, 1997 1996 1995
<S> <C> <C> <C>
Gain on sale of property, plant
and equipment $ 2,465 $ 8,268 $ 4,646
Amortization of capitalized
debt costs (1,381) (2,145) (2,145)
Letters of credit and commitment
fees (1,596) (2,019) (2,741)
Gain on sale of Kollsman - - 6,461
Gain on sale of investment - - 2,664
Dividend income - - 2,080
Income (loss) on cash surrender
value of corporate-owned
life insurance 1,321 (150) -
Other 334 329 (207)
------- ------- --------
$ 1,143 $ 4,283 $ 10,758
======= ======= ========
</TABLE>
<PAGE>
NOTE 16. OPERATING LEASES
Certain businesses of the Company utilize leased premises or
equipment under noncancelable agreements having initial or
remaining terms of more than one year. The majority of the real
property leases require the Company to pay maintenance, insurance
and real estate taxes. Rental expense totaled $17,083,000,
$18,065,000 and $17,826,000 in 1997, 1996 and 1995, respectively.
At December 31, 1997, future minimum lease payments under
noncancelable operating leases are as follows:
<TABLE>
(Amounts in thousands)
<S> <C>
1998 $11,565
1999 9,314
2000 7,879
2001 6,531
2002 5,999
After 2002 20,186
-------
$61,474
=======
</TABLE>
NOTE 17. SUPPLEMENTAL CASH FLOW INFORMATION
Net cash provided by discontinued operations primarily represents
the net proceeds from the divestiture and run off of Sequa
Capital's investment portfolio.
Selected noncash activities and cash payments were as follows:
<TABLE>
<CAPTION>
(Amounts in thousands)
Year ended December 31, 1997 1996 1995
- ----------------------
<S> <C> <C> <C>
Noncash activities:
Acquisitions of businesses:
Fair value of assets acquired $58,804 $ - $44,868
Cash paid 36,058 - 42,659
------- ------- -------
Liabilities assumed 22,746 - 2,209
Tax benefits related to stock
options and stock grants 982 - -
Interest paid 50,350 52,417 53,436
</TABLE>
<PAGE>
NOTE 18. SEGMENT INFORMATION
Sequa Corporation is a diversified industrial company that
produces a broad range of products in four industry segments:
Aerospace, Machinery and Metal Coatings, Specialty Chemicals and
Other Products.
The Aerospace segment includes two operating units: Chromalloy
Gas Turbine and ARC Propulsion. Gas Turbine, the largest of the
Company's operating units, manufactures and repairs gas turbine
engine components, principally for domestic and international
airlines, original equipment manufacturers and the US military.
ARC Propulsion manufactures solid rocket propulsion systems for
use primarily in tactical military weapons sold to the US
Government, automotive airbag components and liquid propellant
motors for use on commercial satellites.
The Machinery and Metal Coatings segment is composed of Precoat
Metals, Sequa Can Machinery and MEGTEC. Precoat Metals applies
polymer coatings to continuous steel and aluminum coil for the
nationwide building products market, the diverse markets for
manufactured products, and the container market. Sequa Can
Machinery produces high speed equipment to form and decorate two-
piece metal cans for the worldwide container industry. MEGTEC
provides auxiliary press equipment for web offset printing, and
dryers and environmental control equipment for the international
industrial, paper and printing markets.
The Specialty Chemicals segment is composed of Warwick
International and Sequa Chemicals. Warwick produces bleach
activators for powdered laundry detergent products sold
principally in European markets. Sequa Chemicals produces a
broad range of specialty chemicals primarily for domestic
textile, paper, graphic arts and building products markets.
The Other Products segment is composed of three primary
businesses: Casco Products, the men's apparel unit and Northern
Can Systems. Casco manufactures cigarette lighters, power
outlets and electronic monitoring devices primarily for North
American automobile manufacturers. The men's apparel unit
designs and manufactures men's formalwear and accessories for the
North American market. Northern Can Systems, which produces
easy-open steel lids for the domestic and international food
processing industry, was sold in December 1997.
<PAGE>
NOTE 18. SEGMENT INFORMATION (con't)
Operations by business segment is presented below:
<TABLE>
<CAPTION>
(Amounts in thousands)
Year ended December 31, 1997 1996 1995
- --------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
AEROSPACE
Sales $ 904,999 $ 793,617 $ 785,627
Operating income 61,730 15,658 10,179
Identifiable assets 899,576 889,000 956,120
Capital expenditures 41,053 26,519 27,312
Depreciation and amortization 54,051 60,512 67,740
MACHINERY AND METAL COATINGS
Sales $ 340,649 $ 350,991 $ 312,891
Operating income 11,477 27,216 32,287
Identifiable assets 242,852 214,916 210,850
Capital expenditures 10,815 10,877 10,062
Depreciation and amortization 10,436 10,524 8,528
SPECIALTY CHEMICALS
Sales $ 215,121 $ 217,996 $ 243,030
Operating income 26,666 38,026 44,394
Identifiable assets 207,312 177,282 163,112
Capital expenditures 7,804 8,016 14,523
Depreciation and amortization 13,494 12,314 12,123
OTHER PRODUCTS
Sales $ 134,356 $ 96,425 $ 72,591
Operating income 14,240 11,697 7,671
Identifiable assets 61,903 64,118 74,706
Capital expenditures 7,485 4,242 4,393
Depreciation and amortization 5,953 5,665 5,592
CORPORATE
Expenses $ (29,406) $ (27,439) $ (26,604)
Identifiable assets (a) 180,032 202,846 217,190
Capital expenditures 1,803 574 609
Depreciation and amortization 1,881 2,572 2,502
TOTALS
Sales $1,595,125 $1,459,029 $1,414,139
Operating income 84,707 65,158 67,927
Identifiable assets 1,591,675 1,548,162 1,621,978
Capital expenditures 68,960 50,228 56,899
Depreciation and amortization 85,815 91,587 96,485
<FN>
(a) Includes net assets of discontinued operations.
</TABLE>
<PAGE>
NOTE 18. SEGMENT INFORMATION (con't)
Geographic data is presented below:
GEOGRAPHIC DATA
<TABLE>
<CAPTION>
(Amounts in thousands)
Year ended December 31, 1997 1996 1995
- ----------------------- ---- ---- ----
<S> <C> <C> <C>
SALES
United States $1,231,509 $1,078,940 $1,027,390
Europe 363,616 380,089 386,749
---------- ---------- ----------
Total $1,595,125 $1,459,029 $1,414,139
========== ========== ==========
OPERATING INCOME
United States $ 87,431 $ 56,601 $ 57,335
Europe 26,682 35,996 37,196
Corporate expenses (29,406) (27,439) (26,604)
---------- ---------- ----------
Total $ 84,707 $ 65,158 $ 67,927
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1997 1996 1995
- ------------------ ---- ---- ----
<S> <C> <C> <C>
IDENTIFIABLE ASSETS
- -------------------
United States $1,088,281 $1,030,260 $1,089,438
Europe 323,362 315,056 315,350
Corporate and discontinued
operations 180,032 202,846 217,190
---------- ---------- ----------
Total $1,591,675 $1,548,162 $1,621,978
========== ========== ==========
</TABLE>
Operating income includes all costs and expenses directly
related to the segment or geographic area. Identifiable assets
are those used in each segment's operation.
No single commercial customer accounted for more than 10% of
sales in any year.
Export sales were as follows:
<TABLE>
<CAPTION>
(Amounts in thousands)
Year ended December 31, 1997 1996 1995
- --------------------------- ---- ---- ----
<S> <C> <C> <C>
Europe $142,067 $117,873 $121,918
Asia Pacific 82,003 76,830 74,830
Middle East 15,231 19,330 15,737
Canada 31,248 28,253 27,241
Central and South America 41,060 33,637 31,725
Other 14,580 21,089 15,680
-------- -------- --------
$326,189 $297,012 $287,131
======== ======== ========
</TABLE>
<PAGE>
NOTE 18. SEGMENT INFORMATION (con't)
The largest single contract with any one US Government agency
accounted for approximately 1% of sales in 1997 and 1996, and 2%
in 1995. Prime and subcontracts with all government agencies
accounted for approximately 10% of sales in 1997 and 1996, and
approximately 11% of sales in 1995.
NOTE 19. CONTINGENCIES
The Company is involved in a number of claims, lawsuits and
proceedings (environmental and otherwise) which arose in the
ordinary course of business. Other litigation is pending against
the Company involving allegations that are not routine and
include, in certain cases, compensatory and punitive damage
claims. Included in this other class of litigation is an action
commenced on July 11, 1995 by United Technologies Corporation
(UTC) through its Pratt & Whitney division against Chromalloy Gas
Turbine Corporation (Chromalloy) in the United States District
Court for the District of Delaware. The complaint seeks
unspecified monetary damages and injunctive relief based upon
alleged breaches of certain license agreements, alleged
infringement of patents and misuse of Pratt & Whitney
intellectual property. Chromalloy's answer denies UTC's claims,
and Chromalloy's counterclaims against UTC seek monetary,
declaratory and injunctive relief based on UTC's breaches of
license agreements, failure to return royalty overpayments,
patent invalidity, and patent misuse. On May 1, 1997, the Court
granted summary judgment in favor of Chromalloy dismissing two of
the more substantial UTC royalty claims, and also granted summary
judgment in favor of Chromalloy on one of its counterclaims.
Chromalloy and UTC settled several of UTC's other claims,
including all of the claims scheduled for trial in May and
November 1997. As part of the agreement to settle, certain of
UTC's claims were dismissed with prejudice, and UTC recognized
Chromalloy's license to perform certain repairs. In return,
Chromalloy agreed to pay UTC royalties, which resulted in a July
3, 1997 payment to UTC in the amount of $1,200,000, after taking
into account offsetting credits that UTC owed to Chromalloy.
This payment was charged to accruals previously set up for this
purpose.
On December 10, 1997, the Court issued a series of rulings
relating to nine separate motions. As part of these rulings, the
Court granted Chromalloy's motion for summary judgment dismissing
UTC's claims that Chromalloy had breached one of the license
agreements between the parties. The Court also granted
Chromalloy's motion for leave to file a fourth amended pleading,
which contains additional breach of contract claims against UTC,
affirmed previous rulings dismissing certain UTC claims, and
denied a number of partial summary judgment motions. On December
19, 1997, the parties concluded a six-day bench trial on
Chromalloy's counterclaim for certain breaches of one of the
<PAGE>
NOTE 19. CONTINGENCIES (con't)
license agreements between the parties. The parties are awaiting
the Court's decision on those claims. A July 1998 trial date has
been set for additional claims by both UTC and Chromalloy, and
other remaining claims have not yet been scheduled for trial.
Discovery on these claims is ongoing. It would be premature at
this stage for management to make an evaluation of the likely
outcome of either UTC's remaining claims or Chromalloy's
remaining counterclaims.
On August 29, 1995, Chromalloy filed suit against UTC in the
131st District Court of Bexar County, Texas. This suit sought
unspecified damages and injunctive relief for alleged violations
by UTC of the Texas Free Enterprise and Antitrust Act.
Chromalloy's claims focused on allegedly illegal, exclusionary
and monopolistic activities with respect to the aftermarket for
Pratt & Whitney commercial jet engine components. UTC filed
counterclaims against Chromalloy for alleged breach of contract
and unfair competition. After a three-month trial, which
commenced on August 26, 1996, the jury unanimously found UTC had
attempted to monopolize the relevant market in a way which
materially harmed Chromalloy, and found UTC's conduct to be
"willful" or "flagrant." However, the jury awarded no monetary
damages. The jury awarded no relief on any of UTC's
counterclaims. On May 19, 1997, the Court denied Chromalloy's
request for injunctive relief and refused to award UTC any relief
on its counterclaims. Chromalloy is appealing the denial of
injunctive relief to the Fourth Court of Appeals in Bexar County,
Texas and believes there are ample grounds for appeal. The Court
has set the oral argument for April 8, 1998 in San Antonio,
Texas. The parties currently are in the process of briefing the
issues raised by that appeal.
On October 17, 1996, Chromalloy filed suit against UTC in
the United States District Court for the District of Delaware.
The suit seeks unspecified damages for and injunctive relief
against alleged infringement of Chromalloy patents. On December
6, 1996, UTC filed its answer asserting several affirmative
defenses and four counterclaims. On January 21, 1997, Chromalloy
filed a reply to UTC's counterclaims and also filed a motion to
dismiss two of those four counterclaims. In response to that
motion, UTC agreed to dismiss one of the counterclaims. The
motion to dismiss the other counterclaim was granted on September
29, 1997. The Court has set the trial date for September 2,
1998. Discovery is ongoing. It would be premature at this stage
for management to make an evaluation of the likely outcome of
this matter.
During 1997 and 1996, the Company incurred $9,907,000 and
$33,040,000, respectively, in costs related to litigation with
UTC.
<PAGE>
NOTE 19. CONTINGENCIES (con't)
Chromalloy competes for turbine engine repair business with
a number of other companies, including the original equipment
manufacturers (OEMs). Such OEMs generally have obligations
(contractual and otherwise) to approve vendors to manufacture
components for their engines and/or perform repair services on
their engines and components. Chromalloy has a number of such
approvals, including licensing agreements, which allow it to
manufacture and repair certain components of flight engines. The
loss of a major OEM's approval to manufacture or repair
components for such OEM's engines could have an adverse effect on
Chromalloy, although management believes it has certain actions
available to it to mitigate the adverse effect.
The ultimate legal and financial liability of the Company in
respect to all claims, lawsuits and proceedings referred to above
cannot be estimated with any certainty. However, in the opinion
of management, based on its examination of such matters, its
experience to date and discussions with counsel, the ultimate
outcome of these contingencies, net of liabilities already
accrued in the Company's Consolidated Balance Sheet, is not
expected to have a material adverse effect on the Company's
consolidated financial position, although the resolution in any
reporting period of one or more of these matters could have a
significant impact on the Company's results of operations for
that period.
<PAGE>
<TABLE>
NOTE 20. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<CAPTION>
(Amounts in thousands, except per share)
1997 Quarter ended March 31 June 30 Sept. 30 Dec. 31 Year
- ------------------ -------- ------- -------- ------- ----------
<S> <C> <C> <C>
Sales $373,328 $393,458 $391,333 $437,006 $1,595,125
Cost of sales 303,609 317,319 313,738 351,163 1,285,829
Operating income 14,389 23,895 23,359 23,064 84,707
Net income $ 1,525 $ 4,555 $ 6,649 $ 6,898 $ 19,627
======== ======== ======== ======== ==========
Basic and diluted earnings per share:
Net income $ 0.08 $ 0.38 $ 0.59 $ 0.61 $ 1.66
======== ======== ======== ======== ==========
1996 Quarter ended March 31 June 30 Sept. 30 Dec. 31 Year
- ------------------ -------- ------- -------- ------- ----------
Sales $349,126 $361,436 $367,723 $380,744 $1,459,029
Cost of sales 283,872 288,565 297,734 290,021 1,160,192
Operating income 10,122 13,021 7,182 34,833 65,158
Income (loss) before extraordinary item (3,753) (1,385) 2,849 11,845 9,556
Extraordinary loss - - (369) - (369)
Net income (loss) $ (3,753) $ (1,385) $ 2,480 $ 11,845 $ 9,187
======== ======== ======== ======== ==========
Basic and diluted earnings (loss) per share:
Net income (loss) before extraordinary
item $ (0.46) $ (0.22) $ 0.21 $ 1.12 $ 0.65
Extraordinary loss - - (.04) - (.04)
-------- -------- -------- -------- ----------
Net income (loss) $ (0.46) $ (0.22) $ 0.17 $ 1.12 $ 0.61
======== ======== ======== ======== ==========
<FN>
The following unusual item is included in the quarterly financial information:
Operating income for the fourth quarter of 1996 includes the reversal of $7,859,000 of workers'
compensation insurance reserves, which were actuarially determined to be in excess of requirements.
</TABLE>
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
- ------- -----------------------------------------------------
None.
PART III
--------
ITEMS 10. THROUGH 13.
- --------- -----------
The information required by Item 10 with respect to
executive officers is contained on page 14 of this Annual Report
on Form 10-K and is hereby incorporated by reference.
The Company intends to file with the Securities and Exchange
Commission a definitive proxy statement pursuant to Regulation
14A involving the election of directors not later than 120 days
after the end of its fiscal year ended December 31, 1997.
Accordingly, the information required by Part III (Items 10,
concerning Sequa's directors and disclosure pursuant to Item 405
of Regulation S-K, and items 11, 12 and 13) is incorporated
herein by reference to such definitive proxy statement in
accordance with General Instruction G(3) to Form 10-K.
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
- -------- --------------------------------------------------------
FORM 8-K.
---------
(a) 1. Financial Statements:
---------------------
<TABLE>
The following consolidated financial statements are included
in Part II of this Annual Report on Form 10-K:
<CAPTION>
Page Numbers
in this Annual
Report on Form
10-K
<S> <C>
Report of Independent Public Accountants. 31
Consolidated Balance Sheet as of December 31,
1997 and 1996. 32-33
Consolidated Statement of Income for the three
years ended December 31, 1997. 34
Consolidated Statement of Cash Flows for the three
years ended December 31, 1997. 35
Consolidated Statement of Shareholders' Equity for
the three years ended December 31, 1997. 36
Notes to Consolidated Financial Statements. 37-65
2. Financial Statement Schedules:
------------------------------
Financial statement schedules are omitted due to the absence of
conditions under which they are required.
</TABLE>
<PAGE>
3. Exhibits
--------
Exhibit No. (Referenced to Item 601(b) of Regulation S-K)
- -----------
3.1 - Restated Certificate of Incorporation of Sequa and two
Certificates of Amendment of the Restated Certificate of
Incorporation of Sequa (incorporated by reference to
Exhibit 4(a) of Sequa's Registration Statement No.
33-12420 on Form S-8 filed on March 6, 1987).
3.2 - Certificate of Amendment of Certificate of Incorporation
of Sequa, dated May 7, 1987 (incorporated by reference
to Exhibit 3(b) of Sequa's Annual Report on Form 10-K,
File No. 1-804, for the year ended December 31, 1988,
filed on March 28, 1989).
3.3 - Restated and amended (as of August 26, 1993) By-laws of
Sequa, (incorporated by reference to Exhibit 3.3 of
Sequa's Registration Statement No. 33-50843 on Form S-1,
filed on October 29, 1993).
4.1 - Indenture, dated as of December 15, 1993, by and between
Sequa and Bankers Trust Company, as Trustee, and Form of
9 3/8% Senior Subordinated Note due December 15, 2003
(incorporated by reference to Exhibits 4.7 and 4.3,
respectively, of Sequa's Registration Statement on Form
8-A, File No. 1-804, filed on January 25, 1994).
4.2 - Indenture, dated as of December 15, 1993, by and between
Sequa and IBJ Schroder Bank & Trust Company, as Trustee,
and Form of 8 3/4% Senior Note due December 15, 2001
(incorporated by reference to Exhibits 4.6 and 4.2,
respectively, of Sequa's Registration Statement on Form
8-A, File No. 1-804, filed on January 25, 1994).
4.3 - Indenture, dated as of September 1, 1989, by and between
Sequa and The First National Bank of Chicago, as
Trustee, with respect to an aggregate of $250 million of
senior debt (incorporated by reference to Exhibit 4.1 of
Sequa's Form S-3 Registration Statement No. 33-30959,
filed on September 12, 1989).
4.4 - First Supplemental Indenture, dated as of October 15,
1989, by and between Sequa and The First National Bank
of Chicago, as Trustee (incorporated by reference to
Exhibit 4.5 of Sequa's Registration Statement on Form
8-A, File No. 1-804, filed on January 25, 1994).
4.5 - Prospectus Supplement, dated October 19, 1989, for $150
million of senior unsecured 9 5/8% Notes due October 15,
1999 (incorporated by reference to Sequa's filing under
Rule 424 (b)(2) on October 20, 1989).
<PAGE>
4.6 - Purchase Agreement, dated October 19, 1989, by and
between Sequa and certain Underwriters, and Form of
Supplemental Indenture, dated as of October 15, 1989,
both with respect to $150 million of senior unsecured
9 5/8% Notes due October 15, 1999 (incorporated by
reference to Sequa's Report on Form 8-K, File No. 1-804,
filed on October 25, 1989) and Form of 9 5/8% Note
(incorporated by reference to Exhibit 4.1 of Sequa's
Registration Statement on Form 8-A, File No. 1-804,
filed on January 25, 1994).
4.7 - Prospectus and Prospectus Supplement, both dated April
22, 1991, with respect to $100 million of medium-term
notes (incorporated by reference to Sequa's filing under
Rule 424 (b)(5) on April 23, 1991).
4.8 - Sales Agency and Distribution Agreement, executed as of
April 22, 1991, by and among Sequa and Bear, Stearns &
Co., Inc. and Merrill Lynch & Co., with respect to $100
million of medium-term notes, and Forms of Notes
thereunder (incorporated by reference to Exhibits 4.1
and 12.1 of Sequa's Report on Form 8-K, File No. 1-804,
filed on April 25, 1991).
4.9 - Instruments with respect to other long-term debt of
Sequa and its consolidated subsidiaries are omitted
pursuant to Item 601(b)(4)(iii) of Regulation S-K since
the amount of debt authorized under each such omitted
instrument does not exceed 10 percent of the total
assets of Sequa and its subsidiaries on a consolidated
basis. Sequa hereby agrees to furnish a copy of any
such instrument to the Securities and Exchange
Commission upon request.
10.1 - $150 Million Credit Agreement, dated as of October 10,
1997, among Sequa, certain Subsidiary Guarantors of
Sequa, certain Lenders, The Chase Manhattan Bank as
Swingline Lender, Issuing Bank and Administrative Agent
and The Bank of New York, as Issuing Bank (filed
herewith).
COMPENSATORY PLANS OR ARRANGEMENTS
10.2 - 1998 Key Employees Stock Option Plan (filed herewith).
10.3 - Sequa Corporation Management Incentive Bonus Program for
Corporate Executive Officers (Revised for 1998) (filed
herewith).
<PAGE>
COMPENSATORY PLANS OR ARRANGEMENTS (con't)
10.4 - Sequa's Supplemental Executive Retirement Plans I, II,
and III, effective as of January 1, 1990 (incorporated
by reference to Exhibit 10(c) of Sequa's Annual Report
on Form 10-K, File No. 1-804, for the year ended
December 31, 1990, filed on April 1, 1991) and
amendments thereto (incorporated by reference to Exhibit
10(c) of Sequa's Annual Report on Form 10-K, File
No. 1-804, for the year ended December 31, 1991, filed
on March 30, 1992).
10.5 - Sequa Corporation Management Incentive Bonus Program for
Corporate Non-Executive Officers and Corporate Staff
(Revised for 1998) (filed herewith).
10.6 - Letter Agreements, dated May 24, 1984, by and between
Norman E. Alexander and Sequa, and Stuart Z. Krinsly and
Sequa (incorporated by reference to Exhibit 10(h) of
Sequa's Annual Report on Form 10-K, File No. 1-804, for
the year ended December 31, 1989, filed on March 30,
1990).
10.7 - Letter Agreements, dated April 30, 1990, by and between
Norman E. Alexander and Sequa, and Stuart Z. Krinsly and
Sequa (incorporated by reference to Exhibit 10 (h) of
Sequa's Annual Report on Form 10-K, File No. 1-804, for
the year ended December 31, 1990, filed on April 1,
1991).
10.8 - Employment Agreement, dated April 1, 1993, by and
between John J. Quicke and Sequa, (incorporated by
reference to Exhibit 10(k) of Sequa's Annual Report on
Form 10-K, File No. 1-804 for the year ended December
31, 1992, filed on March 31, 1993); Amendment thereto,
dated March 1, 1995 (incorporated by reference to
Exhibit 10.11 of Sequa's Annual Report on Form 10-K,
File No. 1-804, for the year ended December 31, 1994,
filed on March 30, 1995); and Amendment thereto, dated
September 26, 1996 (incorporated by reference to Exhibit
10.9 of Sequa's Annual Report on Form 10-K, File
No. 1-804, for the year ended December 31, 1996, filed
on March 24, 1997).
10.9 - Employment Agreement, dated as of October 1, 1991, by
and between Martin Weinstein and Chromalloy Gas Turbine
Corporation, (incorporated by reference to Exhibit 10(n)
of Sequa's Annual Report on Form 10-K, File No. 1-804
for the year ended December 31, 1991, filed on March 30,
1992); Amendment thereto, dated as of June 1, 1993
(incorporated by reference to Exhibit 10.14 of Sequa's
Registration Statement No. 33-50843 on Form S-1 filed on
<PAGE>
COMPENSATORY PLANS OR ARRANGEMENTS (con't)
10.9 - (con't)
October 29, 1993); Amendment thereto, dated as of
February 23, 1995 (incorporated by reference to Exhibit
10.12 of Sequa's Annual Report on Form 10-K, File No. 1-
804, for the year ended December 31, 1995, filed on
March 28, 1996); and Amendment thereto, dated as of June
1, 1996 (incorporated by reference to Exhibit 10.11 of
Sequa's Annual Report on Form 10-K, File No. 1-804, for
the year ended December 31, 1996, filed on March 24,
1997).
10.10 - Executive Life Insurance Plan of Sequa, (incorporated by
reference to Exhibit 10(o) of Sequa's Annual Report on
Form 10-K, File No. 1-804 for the year ended December
31, 1991, filed on March 30, 1992).
10.11 - Key Employee Medical Insurance Plan of Sequa,
(incorporated by reference to Exhibit 10(p) of Sequa's
Annual Report on Form 10-K, File No. 1-804 for the year
ended December 31, 1991, filed on March 30, 1992).
10.12 - Sequa Corporation Management Incentive Bonus Program for
Operating Divisions (Revised 1997) (incorporated by
reference to Exhibit 10.18 of Sequa's Annual Report on
Form 10-K, File No. 1-804, for the year ended December
31, 1996, filed on March 24, 1997).
11.1 - Computations of basic and diluted earnings per share,
filed herewith.
18.1 - Accountants letter regarding change in accounting
principle (incorporated by reference to Exhibit 18.1 of
Sequa's Quarterly Report on Form 10-Q, File No. 1-804,
for the quarterly period ended September 30, 1997, filed
on November 14, 1997).
21.1 - List of subsidiaries of Sequa, filed herewith.
23.1 - Consent of Independent Public Accountants, filed
herewith.
27.1 - Financial Data Schedule, filed herewith
(b) Reports on Form 8-K
-------------------
No Reports on Form 8-K were filed during the last quarter of
1997.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual
Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
<TABLE>
<CAPTION>
SEQUA CORPORATION
Date: March 20, 1998 By: /S/ GERALD S. GUTTERMAN
Gerald S. Gutterman
Executive Vice President,
Finance and Administration
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the Registrant and in the capacities indicated on March 20, 1998.
<S> <C>
By: /S/ NORMAN E. ALEXANDER Chairman of the Board, Chief
- -----------------------------
Norman E. Alexander Executive Officer and Director
By: /S/ JOHN J. QUICKE President, Chief Operating Officer
- -----------------------------
John J. Quicke and Director
By: /S/ STUART Z. KRINSLY Senior Executive Vice President,
- -----------------------------
Stuart Z. Krinsly General Counsel and Director
By: /S/ GERALD S. GUTTERMAN Executive Vice President, Finance
- -----------------------------
Gerald S. Gutterman and Administration
By: /S/ WILLIAM P. KSIAZEK Vice President and Controller
- -----------------------------
William P. Ksiazek
By: Director
- -----------------------------
Leon Black
By: /S/ALVIN DWORMAN Director
- -----------------------------
Alvin Dworman
By: Director
- -----------------------------
A. Leon Fergenson
By: /S/ DAVID S. GOTTESMAN Director
- -----------------------------
David S. Gottesman
By: /S/ DONALD D. KUMMERFELD Director
- -----------------------------
Donald D. Kummerfeld
By: /S/ RICHARD S. LEFRAK Director
- -----------------------------
Richard S. LeFrak
By: /S/ MICHAEL I. SOVERN Director
- -------------------------
Michael I. Sovern
By: Director
- -----------------------------
Fred R. Sullivan
By: /S/ GERALD TSAI Director
- -----------------------------
Gerald Tsai, Jr.
</TABLE>
<PAGE>
Exhibit 10.1
Execution Counterpart
------------------------------
CREDIT AGREEMENT
dated as of
October 10, 1997
among
SEQUA CORPORATION
The SUBSIDIARY GUARANTORS Party Hereto
The LENDERS Party Hereto
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
---------------------
$150,000,000
---------------------
---------------------------------------
CHASE SECURITIES INC.,
as Arranger
THE BANK OF NEW YORK,
as Syndication Agent
THE BANK OF NOVA SCOTIA,
as Documentation Agent
<PAGE>
<TABLE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
<S> <C>
SECTION 1.01. Defined Term 1
SECTION 1.02. Classification of Loans and Borrowings. . . . . . . . . . 25
SECTION 1.03. Terms Generally . . . . . . . . . . . . . . . . . . . . . 25
SECTION 1.04. Accounting Terms; GAAP. . . . . . . . . . . . . . . . . . 26
</TABLE>
ARTICLE II
THE CREDITS
<TABLE>
<S> <C>
SECTION 2.01. The Commitments . . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.02. Loans and Borrowings. . . . . . . . . . . . . . . . . . . 26
SECTION 2.03. Requests for Revolving Loan Borrowings. . . . . . . . . . 27
SECTION 2.04. Swingline Loans . . . . . . . . . . . . . . . . . . . . . 28
SECTION 2.05. Letters of Credit . . . . . . . . . . . . . . . . . . . . 30
SECTION 2.06. Funding of Borrowings . . . . . . . . . . . . . . . . . . 34
SECTION 2.07. Interest Elections. . . . . . . . . . . . . . . . . . . . 35
SECTION 2.08. Termination and Reduction of the Commitments. . . . . . . 36
SECTION 2.09. Repayment of Loans; Evidence of Debt. . . . . . . . . . . 37
SECTION 2.10. Prepayment of Loans . . . . . . . . . . . . . . . . . . . 38
SECTION 2.11. Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 2.12. Interest. . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 2.13. Alternate Rate of Interest. . . . . . . . . . . . . . . . 41
SECTION 2.14. Increased Costs . . . . . . . . . . . . . . . . . . . . . 41
SECTION 2.15. Break Funding Payments. . . . . . . . . . . . . . . . . . 43
SECTION 2.16. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 2.17. Payments Generally; Pro Rata Treatment; Sharing of
Set-offs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 2.18. Mitigation Obligations; Replacement of Lenders. . . . . . 46
SECTION 2.19. Extension of Maturity Date. . . . . . . . . . . . . . . . 47
</TABLE>
ARTICLE III
GUARANTEE
<TABLE>
<S> <C>
SECTION 3.01. The Guarantee . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 3.02. Obligations Unconditional . . . . . . . . . . . . . . . . 48
SECTION 3.03. Reinstatement . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 3.04. Subrogation . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 3.05. Remedies. . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 3.06. Instrument for the Payment of Money . . . . . . . . . . . 50
SECTION 3.07. Continuing Guarantee. . . . . . . . . . . . . . . . . . . 50
SECTION 3.08. Rights of Contribution. . . . . . . . . . . . . . . . . . 50
SECTION 3.09. General Limitation on Guarantee Obligations . . . . . . . 51
</TABLE>
<PAGE>
<TABLE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
<S> <C>
SECTION 4.01. Organization; Powers. . . . . . . . . . . . . . . . . . . 51
SECTION 4.02. Authorization; Enforceability . . . . . . . . . . . . . . 51
SECTION 4.03. Governmental Approvals; No Conflicts. . . . . . . . . . . 52
SECTION 4.04. Financial Condition; No Material Adverse Change . . . . . 52
SECTION 4.05. Properties. . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 4.06. Litigation and Environmental Matters. . . . . . . . . . . 53
SECTION 4.07. Compliance with Laws and Agreements . . . . . . . . . . . 53
SECTION 4.08. Investment and Holding Company Status . . . . . . . . . . 53
SECTION 4.09. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 4.10. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 4.11. Disclosure. . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 4.12. Use of Credit . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 4.13. Material Agreements and Liens . . . . . . . . . . . . . . 54
SECTION 4.14. Material Subsidiaries, Etc. . . . . . . . . . . . . . . . 55
SECTION 4.15. Disaster. . . . . . . . . . . . . . . . . . . . . . . . . 55
</TABLE>
ARTICLE V
CONDITIONS
<TABLE>
<S> <C>
SECTION 5.01. Effective Date. . . . . . . . . . . . . . . . . . . . . . 56
SECTION 5.02. Each Credit Event . . . . . . . . . . . . . . . . . . . . 57
</TABLE>
ARTICLE VI
AFFIRMATIVE COVENANTS
<TABLE>
<S> <C>
SECTION 6.01. Financial Statements and Other Information. . . . . . . . 58
SECTION 6.02. Notices of Material Events. . . . . . . . . . . . . . . . 59
SECTION 6.03. Preservation of Existence and Properties, Scope of
Business,
Compliance with Law, Payment of Taxes and Claims,
Preservation of Enforceability. . . . . . . . . . . . 60
SECTION 6.04. Maintenance of Properties; Insurance. . . . . . . . . . . 60
SECTION 6.05. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . 61
SECTION 6.06. Books and Records; Inspection Rights. . . . . . . . . . . 61
SECTION 6.07. Certain Obligations Respecting Subsidiaries . . . . . . . 61
</TABLE>
ARTICLE VII
NEGATIVE COVENANTS
<TABLE>
<S> <C>
SECTION 7.01. Guarantees. . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 7.02. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 7.03. Restricted Payments . . . . . . . . . . . . . . . . . . . 63
SECTION 7.04. Merger or Consolidation . . . . . . . . . . . . . . . . . 64
SECTION 7.05. Disposition of Assets . . . . . . . . . . . . . . . . . . 64
SECTION 7.06. Taxes of Other Persons. . . . . . . . . . . . . . . . . . 65
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 7.07. Benefit Plans . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 7.08. Transactions with Affiliates. . . . . . . . . . . . . . . 65
SECTION 7.09. Limitation on Restrictive Covenants . . . . . . . . . . . 65
SECTION 7.10. Issuance or Disposition of Capital Securities;
Investments;
Acquisitions. . . . . . . . . . . . . . . . . . . . . 66
SECTION 7.11. Short Term Indebtedness . . . . . . . . . . . . . . . . . 66
SECTION 7.12. Material Subsidiary Indebtedness. . . . . . . . . . . . . 66
SECTION 7.13. Certain Financial Covenants.. . . . . . . . . . . . . . . 67
SECTION 7.14. Capital Expenditures. . . . . . . . . . . . . . . . . . . 68
SECTION 7.15. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . 68
</TABLE>
ARTICLE VIII
<TABLE>
<S> <C>
EVENTS OF DEFAULT . . . . . . . . . . . . . . 68
ARTICLE IX
THE ADMINISTRATIVE AGENT. . . . . . . . . . . . . 71
ARTICLE X
MISCELLANEOUS
</TABLE>
<TABLE>
<S> <C>
SECTION 10.01. Notices. . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 10.02. Waivers; Amendments. . . . . . . . . . . . . . . . . . . 75
SECTION 10.03. Expenses; Indemnity; Damage Waiver . . . . . . . . . . . 76
SECTION 10.04. Successors and Assigns . . . . . . . . . . . . . . . . . 77
SECTION 10.05. Survival . . . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 10.06. Counterparts; Integration; Effectiveness . . . . . . . . 80
SECTION 10.07. Severability . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 10.08. Right of Setoff. . . . . . . . . . . . . . . . . . . . . 80
SECTION 10.09. Governing Law; Jurisdiction; Consent to Service of
Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
SECTION 10.10. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . 81
SECTION 10.11. Headings . . . . . . . . . . . . . . . . . . . . . . . . 82
SECTION 10.12. Confidentiality. . . . . . . . . . . . . . . . . . . . . 82
SECTION 10.13. Interest Rate Limitation . . . . . . . . . . . . . . . . 83
SECTION 10.14. Waiver by Required Banks under the Existing Credit
Agreement . . . . . . . . . . . . . . . . . . . . . . 83
</TABLE>
SCHEDULE I - Commitments
SCHEDULE II - Material Agreements and Liens
SCHEDULE III - Litigation and Environmental Matters
SCHEDULE IV - Subsidiaries and Investments
SCHEDULE V - Plans
SCHEDULE VI - Discontinued Subsidiaries and Non-Core Business
SCHEDULE VII - Permitted Restrictive Covenant
SCHEDULE VIII - Existing Subsidiary Indebtedness
SCHEDULE IX - Existing Guarantee
SCHEDULE X - Existing Liens
SCHEDULE XI - Existing Indebtedness
<PAGE>
EXHIBIT A - Form of Assignment and Acceptance
EXHIBIT B - Form of Guarantee Assumption Agreement
EXHIBIT C - Form of Opinion of Counsel to the Obligors
EXHIBIT D - Form of Opinion of Special New York Counsel to The
Chase Manhattan Bank
<PAGE>
CREDIT AGREEMENT dated as of October 10, 1997, among SEQUA
CORPORATION, the SUBSIDIARY GUARANTORS party hereto, the LENDERS party hereto,
and THE CHASE MANHATTAN BANK, as Administrative Agent.
The Borrower and the Subsidiary Guarantors, as an integrated
group, are engaged principally in the Business (as defined below), and in
furnishing the required supplies, services, equipment, credit and other
facilities for such Business. The integrated operation of the Business
requires financing on such a basis that credit supplied to the Borrower be
made available from time to time to the Subsidiary Guarantors, as required for
the continued successful operation of the Obligors, separately, and the
integrated operation as a whole. In that connection, the Obligors have
requested that the Lenders extend credit to the Borrower (to be made available
by the Lenders to the Subsidiary Guarantors) in an aggregate principal or face
amount not exceeding $150,000,000 to finance the operations of the Obligors
and for other purposes.
To induce the Lenders to extend such credit, the Obligors, the
Lenders and the Administrative Agent propose to enter into this Agreement
pursuant to which the Lenders will make loans to, and issue letters of credit
for the account of, the Borrower, and each Subsidiary Guarantor will guarantee
the credit so extended to the Borrower. Each of the Obligors expects to
derive benefit, directly or indirectly, from the credit so extended to the
Borrower, both in its separate capacity and as a member of the integrated
group, since the successful operation of each of the Obligors is dependent on
the continued successful performance of the functions of the integrated group
as a whole.
Accordingly, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms. As used in this Agreement, the
following terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Alternate Base Rate.
"Adjusted LIBO Rate" means, with respect to any Eurodollar
Borrowing for any Interest Period, an interest rate per annum (rounded
upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for
such Interest Period multiplied by (b) the Statutory Reserve Rate.
"Administrative Agent" means The Chase Manhattan Bank, in its
capacity as administrative agent for the Lenders hereunder.
"Administrative Questionnaire" means an Administrative
Questionnaire in a form supplied by the Administrative Agent.
<PAGE>
"Affiliate" means, with respect to a specified Person, another
Person that directly, or indirectly through one or more intermediaries,
Controls or is Controlled by or is under common Control with the Person
specified.
"Alternate Base Rate" means, for any day, a rate per annum equal
to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD
Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in
effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due
to a change in the Prime Rate, the Base CD Rate or the Federal Funds Effective
Rate shall be effective from and including the effective date of such change
in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate,
respectively.
"Applicable Law" means (i) all applicable common law and
principles of equity and (ii) all applicable provisions of all (A)
constitutions, statutes, rules, regulations and orders of governmental bodies,
(B) Governmental Approvals and (C) orders, decisions, judgments and decrees of
all courts (whether at law or in equity or admiralty) and arbitrators.
"Applicable Percentage" means, with respect to any Lender, the
percentage of the total Commitments represented by such Lender's Commitment.
If the Commitments have terminated or expired, the Applicable Percentages
shall be determined based upon the Commitments most recently in effect, giving
effect to any assignments.
"Applicable Rate" means, for any day, with respect to any ABR Loan
(including any Swingline Loan) or Eurodollar Loan, or with respect to the
facility fees payable hereunder, as the case may be, the applicable rate per
annum set forth below under the caption "ABR Spread", "Eurodollar Spread" or
"Commitment Fee Rate", as the case may be, opposite the applicable Cash Flow
Ratio indicated below for such Rate Period:
<TABLE>
<CAPTION>
Cash Flow ABR Eurodollar Commitment
Ratio Spread Spread Fee Rate
----- ------ ------ --------
<S> <C> <C> <C>
Less than or equal
to 2.75 -0- .750% 0.250%
Greater than 2.75
and less than or
equal to 3.25 -0- 1.000% 0.275%
Greater than 3.25
and less than or
equal to 3.75 .250% 1.250% 0.300%
Greater than 3.75 .500% 1.500% 0.375%
</TABLE>
<PAGE>
For purposes hereof, (i) a "Rate Period" means (x) initially, the
period commencing on April 1, 1998 to but not including the first Rate Reset
Date (as defined below) thereafter and (y) thereafter, the period commencing
on a Rate Reset Date to but not including the immediately following Rate Reset
Date and (ii) a "Rate Reset Date" means, with respect to any fiscal quarter or
fiscal year, the date on which the Borrower is required to have delivered the
financial statements under Section 6.01(a) or (b) in respect of such fiscal
quater or fiscal year, as the case may be.
Anything in this Agreement to the contrary notwithstanding, until
March 31, 1998, the Applicable Rate shall be fixed as follows:
ABR Spread: -0-
Eurodollar Spread: 1.000%
Commitment Fee Rate: 0.275%
The Cash Flow Ratio for any Rate Period shall be the Cash Flow
Ratio set forth in the applicable financial statement required to be delivered
under Section 6.01(a) or (b) as at the last day of the fiscal quarter or
fiscal year, as the case may be, in respect of which such financial statement
is delivered.
Anything in this Agreement to the contrary notwithstanding, the
Applicable Rate shall be the highest rates provided for above (i) during any
period when an Event of Default shall have occurred and be continuing, or (ii)
during the period when the applicable financial statement shall not be
delivered within the time that the applicable financial statements are
required to be delivered by Section 6.01(a) or (b), as the case may be.
At any time that the Borrower has outstanding long term debt
securities that are not the subject of any credit enhancement and that are
rated at least BBB-, Baa3 or BBB- by at least two of S&P, Moody's or Duff &
Phelps Credit Rating Co., respectively, the ABR Spread and the Eurodollar
Spread that would otherwise be applicable hereunder will be reduced by 0.125%
(but in no event less than zero) from the rate that would otherwise apply.
"Arranger" means Chase Securities Inc.
"Assessment Rate" means, for any day, the annual assessment rate
in effect on such day that is payable by a member of the Bank Insurance Fund
classified as "well-capitalized" and within supervisory subgroup "B" (or a
comparable successor risk classification) within the meaning of 12 C.F.R. Part
327 (or any successor provision) to the Federal Deposit Insurance Corporation
for insurance by such Corporation of time deposits made in dollars at the
offices of such member in the United States; provided that if, as a result of
any change in any law, rule or regulation, it is no longer possible to
determine the Assessment Rate as aforesaid, then the Assessment Rate shall be
such annual rate as shall be determined by the Administrative Agent to be
representative of the cost of such insurance to the Lenders.
<PAGE>
"Asset Sale" means the sale, lease, license, transfer or other
disposition (including Sale and Leaseback Transactions) by the Borrower or any
of its Subsidiaries to any Person other than the Borrower or any of its
Subsidiaries of any asset or any interest therein, other than any disposition
of Margin Stock, or of receivables in accordance with the Receivables Purchase
Agreement.
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender and an assignee (with the consent of any party whose
consent is required by Section 10.04), and accepted by the Administrative
Agent, in the form of Exhibit A or any other form approved by the
Administrative Agent.
"Availability Period" means the period from and including the
Effective Date to but excluding the earlier of the Maturity Date and the date
of termination of the Commitments.
"Base CD Rate" means the sum of (a) the Three-Month Secondary CD
Rate multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate.
"Board" means the Board of Governors of the Federal Reserve System
of the United States of America.
"Borrower" means Sequa Corporation, a Delaware corporation.
"Borrowing" means (a) Revolving Loans of the same Type, made,
converted or continued on the same date and, in the case of Eurodollar Loans,
as to which a single Interest Period is in effect or (b) a Swingline Loan.
"Borrowing Request" means a request by the Borrower for a
Revolving Loan Borrowing in accordance with Section 2.03.
"Business" means the repair and manufacture of components for jet
aircraft engines; supplying solid rocket fuel propulsion systems; application
of protective and decorative coatings to continuous steel and aluminum coil;
design and manufacture of equipment for the two-piece can industry; supplying
equipment for the web offset printing industry; producing and supplying TAED,
a bleach activator for powdered laundry detergent products; producing
high-quality performance-enhancing chemicals for the paper, textile and other
industries; manufacture of automotive cigarette lighters, power outlets and
electronic devices; manufacture of steel lids for cans; and related and/or
similar aerospace, machinery and metal coatings, special chemical products,
automotive accessory products and services from time to time, now or
hereafter, conducted by the Borrower and its Subsidiaries.
"Business Day" means any day that is not a Saturday, Sunday or
other day on which commercial banks in New York City are authorized or
required by law to remain closed; provided that, when used in connection with
a Eurodollar Loan, the term "Business Day" shall also exclude any day on which
banks are not open for dealings in dollar deposits in the London interbank
market.
<PAGE>
"Capital Expenditures" means, for any period, expenditures
(including, without limitation, the aggregate amount of Capital Lease
Obligations incurred during such period) made by the Borrower or any of its
Subsidiaries to acquire or construct fixed assets, plant and equipment
(including renewals, improvements and replacements, but excluding repairs)
during such period computed in accordance with GAAP.
"Capital Lease Obligations" of any Person means the obligations of
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
"Capital Security" means, with respect to any Person, (i) any
share of capital stock of such Person or (ii) any security convertible into,
or any option, warrant or other right to acquire, any share of capital stock
of such Person.
"Cash Equivalents" means: (a) direct obligations of the United
States of America, or of any agency thereof, or obligations guaranteed as to
principal and interest by the United States of America, or of any agency
thereof, in either case maturing not more than six months from the date of
acquisition thereof; (b) bankers' acceptances, time deposits, demand deposits
and certificates of deposit accepted by, placed with or issued either by a
Lender or by any bank or trust company organized under the laws of the United
States of America or any state thereof and having capital, surplus and
undivided profits of at least $500,000,000, and maturing not more than six
months from the date of acquisition thereof; (c) commercial paper rated A-1 or
better by S&P or P-1 by Moody's, maturing not more than 90 days from the date
of acquisition thereof; in each case so long as the same (x) provide for the
payment of principal and interest (and not principal alone or interest alone)
and (y) are not subject to any contingency regarding the payment of principal
or interest; (d) investments in repurchase agreements (or reverse repurchase
agreements) covering other Cash Equivalents with financial institutions that
are elected primary government securities dealers by the Federal Reserve Board
or whose securities are rated AA- or better by S&P or Aa or better by Moody's;
(e) money-market funds or money-market mutual funds that (i) seek to maintain
a constant net asset value, (ii) maintain fund assets under management having
an aggregate market value of at least $500,000,000, and (iii) invest primarily
in Cash Equivalents referred to in clauses (a) through (d) above; and (f)
direct obligations of foreign governmental entities or foreign banks rated AA-
or better by S&P or Aa by Moody's.
"Cash Flow Ratio" means, as at any date of determination thereof,
the ratio of (a) Indebtedness of the Borrower and its Subsidiaries (determined
on a consolidated basis, without duplication, in accordance with GAAP) as at
such date to (b) EBITDA for the period of four fiscal quarters ending on or
most recently ended prior to such date.
<PAGE>
"Change in Control" means (a) the acquisition of ownership,
directly or indirectly, beneficially or of record, by any Person or group
(within the meaning of the Securities Exchange Act of 1934 and the rules of
the Securities and Exchange Commission thereunder as in effect on the date
hereof), of shares representing more than 20% (or, in the case of Gabelli,
49%) of the aggregate ordinary voting power represented by the issued and
outstanding capital stock of the Borrower; (b) occupation of a majority of the
seats (other than vacant seats) on the board of directors of the Borrower by
Persons who were neither (i) nominated by the board of directors of the
Borrower nor (ii) appointed by directors so nominated; or (c) the acquisition
of direct or indirect Control of the Borrower by any Person or group;
provided, however, that (x) for the purposes of the foregoing clauses (a) and
(c), the term "Person" shall not be deemed to include the individual who is
the Chairman of the Board of Directors of the Borrower on the Effective Date,
his spouse, any descendant of such Chairman or the spouse of any such
descendant, the estate of such Chairman, or any trust or other similar
arrangement for the benefit of such Chairman or his spouse, any descendant of
such Chairman or the spouse of any such descendant or the estate of such
Chairman or any corporation or other Person controlled solely by such Chairman
or his spouse, any descendant of such Chairman or the spouse of any such
descendant or the estate of such Chairman through the ownership of a majority
of the outstanding voting capital stock of such corporation or other Person
(such Chairman, spouse, descendant, spouse of such descendent, estate, trust,
corporation or other Person being referred to herein as an "Exempt Person" and
(y) no Change of Control shall be deemed to have occurred if, at the time of
determination, the Exempt Persons own, directly or indirectly, beneficially
and of record, shares representing more than 50% of the aggregate ordinary
voting power represented by the issued and outstanding capital stock of the
Borrower and the Exempt Persons Control the Borrower.
"Change in Law" means (a) the adoption of any law, rule or
regulation after the date of this Agreement, (b) any change in any law, rule
or regulation or in the interpretation or application thereof by any
Governmental Authority after the date of this Agreement or (c) compliance by
any Lender or any Issuing Bank (or, for purposes of Section 2.14(b), by any
lending office of such Lender or by such Lender's or such Issuing Bank's
holding company, if any) with any request, guideline or directive (whether or
not having the force of law) of any Governmental Authority made or issued
after the date of this Agreement.
"Class", when used in reference to any Loan or Borrowing, refers
to whether such Loan, or the Loans comprising such Borrowing, are Revolving
Loans or Swingline Loans.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time.
"Commitment" means, with respect to each Lender, the commitment of
such Lender to make Revolving Loans and to acquire participations in Letters
of Credit and Swingline Loans hereunder, expressed as an amount representing
the maximum aggregate amount of such Lender's Revolving Exposure hereunder, as
<PAGE>
such commitment may be (a) reduced from time to time pursuant to Section 2.08
and (b) reduced or increased from time to time pursuant to assignments by or
to such Lender pursuant to Section 10.04. The initial amount of each Lender's
Commitment is set forth on Schedule I, or in the Assignment and Acceptance
pursuant to which such Lender shall have assumed its Commitment, as
applicable.
"Consolidated Net Worth" means, as at any date, the sum for the
Borrower and its Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP) of the following:
(a) the amount of capital stock and paid in capital (excluding
the cost of treasury shares or other similar equity interests); plus
(b) the amount of surplus and retained earnings (or, in the case
of surplus or retained earnings deficit, minus the amount of such
deficit).
"Contract" means (i) any agreement (whether bi-lateral or uni-
lateral or executory or non-executory and whether a Person entitled to rights
thereunder is so entitled directly or as a third-party beneficiary), including
an indenture, lease or license, (ii) any deed or other instrument of
conveyance, (iii) any certificate of incorporation or charter and (iv) any
bylaw.
"Control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ability to exercise voting power, by contract or
otherwise. "Controlling" and "Controlled" have meanings correlative thereto.
"Debt Service" means, for any period, the sum, for the Borrower
and its Subsidiaries (determined on a consolidated basis without duplication
in accordance with GAAP), of the following: (a) all regularly scheduled
payments or prepayments of principal of Indebtedness (including, without
limitation, the principal component of any payments in respect of Capital
Lease Obligations) made during such period plus (b) all Interest Expense for
such period.
"Default" means any event or condition which constitutes an Event
of Default or which upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"Disclosed Matters" means the actions, suits and proceedings and
the environmental matters disclosed in Schedule III.
"Discontinued Asset Sale" means each Asset Sale involving the
assets of a Discontinued Subsidiary.
"Discontinued Subsidiary" means each Subsidiary or division of the
Borrower or any Subsidiary identified on Part A of Schedule VI.
<PAGE>
"Disqualified Stock" means any Capital Security which, by its
terms (or by the terms of any security into which it is convertible or for
which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
redeemable at the option of the holder thereof, in whole or in part, on or
prior to the Maturity Date.
"dollars" or "$" refers to lawful money of the United States of
America.
"Domestic Subsidiary" means any Subsidiary that is organized or
created under the laws of the United States of America, any State or Territory
thereof or the District of Columbia.
"EBITDA" means, for any period, the sum, for the Borrower and its
Subsidiaries (determined on a consolidated basis without duplication in
accordance with GAAP), of the following: (a) operating income (calculated
before taxes, Interest Expense, other income and expense, extraordinary and
unusual items that individually are in excess of $1,000,000 or that together
are in excess of $5,000,000 per year) for such period plus (b) depreciation
and amortization (to the extent deducted in determining net operating income)
for such period.
"Effective Date" means the date on which the conditions specified
in Section 5.01 are satisfied (or waived in accordance with Section 10.02).
"Environmental Laws" means all laws, rules, regulations, codes,
ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any Governmental Authority,
relating in any way to the environment, preservation or reclamation of natural
resources, the management, release or threatened release of any Hazardous
Material or to health and safety matters.
"Environmental Liability" means any Liability, contingent or
otherwise (including any Liability for damages, costs of environmental
remediation, fines, penalties or indemnities), of the Borrower or any
Subsidiary directly or indirectly resulting from or based upon (a) violation
of any Environmental Law, (b) the generation, use, handling, transportation,
storage, treatment or disposal of any Hazardous Materials, (c) exposure to any
Hazardous Materials, (d) the release or threatened release of any Hazardous
Materials into the environment or (e) any contract, agreement or other
consensual arrangement pursuant to which Liability is assumed or imposed with
respect to any of the foregoing.
"Equity Interest" means Capital Security and Equity Rights.
"Equity Rights" means, with respect to any Person, any
subscriptions, options, warrants, commitments, preemptive rights or agreements
of any kind (including, without limitation, any stockholders' or voting trust
agreements) for the issuance, sale, registration or voting of, or securities
<PAGE>
convertible into, any additional shares of capital stock of any class, or
partnership or other ownership interests of any type in, such Person.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that, together with the Borrower, is treated as a single
employer under Section 414(b) or (c) of the Code, or, solely for purposes of
Section 302 of ERISA and Section 412 of the Code, is treated as a single
employer under Section 414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder with respect to a
Plan (other than an event for which the 30-day notice period is waived);
(b) the existence with respect to any Plan of an "accumulated funding
deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA),
whether or not waived; (c) the filing pursuant to Section 412(d) of the Code
or Section 303(d) of ERISA of an application for a waiver of the minimum
funding standard with respect to any Plan; (d) the incurrence by the Borrower
or any of its ERISA Affiliates of any Liability under Title IV of ERISA with
respect to the termination of any Plan; (e) the receipt by the Borrower or any
ERISA Affiliate from the PBGC or a plan administrator of any notice relating
to an intention to terminate any Plan or Plans or to appoint a trustee to
administer any Plan; (f) the incurrence by the Borrower or any of its ERISA
Affiliates of any Liability with respect to the withdrawal or partial
withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the
Borrower or any ERISA Affiliate of any notice, or the receipt by any
Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice,
concerning the imposition of Withdrawal Liability or a determination that a
Multiemployer Plan is, or is expected to be, insolvent or in reorganization,
within the meaning of Title IV of ERISA.
"Eurodollar", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing, are
bearing interest at a rate determined by reference to the Adjusted LIBO Rate.
"Event of Default" has the meaning assigned to such term in
Article VIII.
"Excluded Taxes" means, with respect to the Administrative Agent,
any Lender, any Issuing Bank or any other recipient of any payment to be made
by or on account of any obligation of the Borrower hereunder, (a) income or
franchise taxes imposed on (or measured by) its net income by the United
States of America, or by the jurisdiction under the laws of which such
recipient is organized or in which its principal office is located or, in the
case of any Lender, in which its applicable lending office is located, (b) any
branch profits taxes imposed by the United States of America or any similar
tax imposed by any other jurisdiction in which the Borrower is located and
(c) in the case of a Foreign Lender (other than an assignee pursuant to a
request by the Borrower under Section 2.18(b)), any withholding tax that is
<PAGE>
imposed on amounts payable to such Foreign Lender at the time such Foreign
Lender becomes a party to this Agreement or is attributable to such Foreign
Lender's failure or inability to comply with Section 2.16(e), except to the
extent that such Foreign Lender's assignor (if any) was entitled, at the time
of assignment, to receive additional amounts from the Borrower with respect to
such withholding tax pursuant to Section 2.16(a).
"Existing Benefit Plan" means any Plan listed on Schedule V.
"Existing Credit Agreement" means the Amended and Restated Credit
Agreement dated as of December 14, 1993 among Borrower, The Bank of New York,
as administrative agent, The Bank of New York, The Bank of Nova Scotia and The
Chase Manhattan Bank (previously named Chemical Bank), as managing agents,
Bank of America NT&SA, The Chase Manhattan Bank (as successor by merger to The
Chase Manhattan Bank, N.A.) and The Nippon Credit Bank, Ltd., as co-agents,
and the banks referred to therein, as amended.
"Existing Guarantee" means any Guarantee outstanding, to the
extent, in the case of any Guarantee other than a Guarantee by SCC, set forth
on Schedule IX, and any renewals and extensions thereof, provided that, in the
case of any such renewals or extensions, the amount of the Liabilities so
Guaranteed shall not be increased.
"Existing Letters of Credit" means all letters of credit issued by
The Bank of New York under the Existing Credit Agreement that are outstanding
as of the Effective Date and listed on Schedule XI hereto.
"Existing Subsidiary Indebtedness" means, in the case of any
Subsidiary, (i) Indebtedness of such Subsidiary outstanding on the Effective
Date to the extent set forth on Schedule VIII, (ii) in the case of any
Subsidiary that becomes a Subsidiary after the Effective Date, any
Indebtedness of such Subsidiary outstanding immediately prior to, and at the
time such Subsidiary became a Subsidiary, but only if such Indebtedness was
not incurred in contemplation thereof, and (iii) any Indebtedness of such
Subsidiary constituting a renewal, extension or refunding of any Existing
Subsidiary Indebtedness of such Subsidiary, but only if (A) at the time such
Indebtedness is incurred and immediately after giving effect thereto, no
Default would exist, (B) the principal amount of such Indebtedness does not
exceed the principal amount of the Indebtedness so renewed, extended or
refunded and (C) such Indebtedness bears interest at a rate per annum not
exceeding the rate borne by, and on terms and conditions substantially the
same as, the Indebtedness so renewed, extended or refunded except for any
increase in interest rate that is commercially reasonably at the time such
Indebtedness is incurred.
"Federal Funds Effective Rate" means, for any day, the weighted
average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates
on overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published on the next succeeding
Business Day by the Federal Reserve Bank of New York, or, if such rate is not
so published for any day that is a Business Day, the average (rounded upwards,
<PAGE>
if necessary, to the next 1/100 of 1%) of the quotations for such day for such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"Financial Officer" means the chief financial officer, principal
accounting officer, treasurer or controller of the Borrower.
"Fixed Charges Ratio" means, as at any date, the ratio of
(a) EBITDA plus rent payable by the Borrower and its Subsidiaries for the
period of four consecutive fiscal quarters ending on or most recently ended
prior to such date to (b) Interest Expense during such period plus rent
payable by the Borrower and its Subsidiaries during such period plus dividends
(other than dividends paid to the Borrower or any of its Subsidiaries) paid
during such period.
"Fixed Rate Swingline Loan" has the meaning assigned to such term
in Section 2.04(d).
"Fixed Rate Swingline Period" has the meaning assigned to such
term in Section 2.04(d).
"Foreign Lender" means any Lender that is organized under the laws
of a jurisdiction other than that in which the Borrower is located. For
purposes of this definition, the United States of America, each State thereof
and the District of Columbia shall be deemed to constitute a single
jurisdiction.
"Foreign Subsidiary" means any Subsidiary that is not a Domestic
Subsidiary.
"Funded Current Liability Percentage" has the meaning ascribed to
that term in Section 401(a)(29) of the Code.
"GAAP" means generally accepted accounting principles in the
United States of America.
"Gabelli" means any Person Controlled by, or which is an Affiliate
of, Mario Gabelli.
"GATX Documents" means the GATX Guaranty and Indemnity Agreement
and the GATX Loan and Management Agreement, each dated as of March 24, 1994
and each other related agreement between the Borrower and/or SCC and GATX
Capital Corporation relating to the disposition of or borrowing against the
assets of SCC in effect on the Effective Date, with such amendments and
modifications thereto in form and substance (including, but not limited to,
the extent of the Liabilities incurred by the Borrower in connection
therewith) satisfactory to the Required Lenders.
"Governmental Approval" means any authorization, consent,
approval, license or exemption of, registration or filing with, or report or
notice to, any Governmental Authority.
<PAGE
"Governmental Authority" means the government of the United States
of America, any other nation or any political subdivision thereof, whether
state or local, and any agency, authority, instrumentality, regulatory body,
court, central bank or other entity exercising executive, legislative,
judicial, taxing, regulatory or administrative powers or functions of or
pertaining to government.
"Guarantee" of or by any Person (the "guarantor") means any
obligation, contingent or otherwise, of the guarantor guaranteeing or having
the economic effect of guaranteeing any Liability or other obligation of any
other Person (the "primary obligor") in any manner, whether directly or
indirectly, and including any obligation of the guarantor, direct or indirect,
(a) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Liability or other obligation or to purchase (or to advance or supply
funds for the purchase of) any security for the payment thereof, (b) to
purchase or lease property, securities or services for the purpose of assuring
the owner of such Liability or other obligation of the payment thereof, (c) to
maintain working capital, equity capital or any other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Liability or other obligation or (d) as an account party
in respect of any letter of credit or letter of guaranty issued to support
such Liability or obligation; provided, that the term Guarantee shall not
include endorsements for collection or deposit in the ordinary course of
business.
"Guarantee Assumption Agreement" means a Guarantee Assumption
------------------------------
Agreement substantially in the form of Exhibit B by an entity that, pursuant
to Section 6.07 is required to become a "Subsidiary Guarantor" hereunder in
favor of the Administrative Agent.
"Hazardous Materials" means all explosive or radioactive
substances or wastes and all hazardous or toxic substances, wastes or other
pollutants, including petroleum or petroleum distillates, asbestos or asbestos
containing materials, polychlorinated biphenyls, radon gas, infectious or
medical wastes and all other substances or wastes of any nature regulated
pursuant to any Environmental Law.
"Hedging Agreement" means any interest rate protection agreement,
foreign currency exchange agreement, commodity price protection agreement or
other interest or currency exchange rate or commodity price hedging
arrangement.
"Indebtedness" means, with respect to any Person, at the time any
determination is to be made (a) all indebtedness of such Person, current or
funded, secured or unsecured, incurred in connection with borrowings
(including the sale of debt securities), (b) all indebtedness of such Person,
issued, incurred or assumed in respect of the purchase price of property or
services except for trade accounts payable incurred in the ordinary course of
business consistent with the policies of such Person in effect for the year
ended December 31, 1997, (c) all Capital Lease Obligations and Industrial
<PAGE>
Revenue Bonds of such Person and (d) notes payable of such Person and drafts
accepted by such Person representing extensions of credit whether or not
representing obligations for borrowed money. "Industrial Revenue Bonds"
means, as at the time any determination thereof is to be made, any
indebtedness of a government of any state, or political subdivision thereof,
or municipality in the United State of America, incurred (or any refinancing
thereof, provided the principal amount thereof is not increased) for the
purpose of financing the acquisition, construction or improvement of property
to be used by the Borrower or any of its Subsidiaries under an arrangement by
which the proceeds of the indebtedness are made available by such state,
subdivision or municipality to the Borrower or any of its Subsidiaries through
a loan, a Capital Lease Obligation or other financial Obligation.
"Indemnified Taxes" means Taxes other than Excluded Taxes.
"Intellectual Property" means (a) (i) patents and patent rights,
(ii) trademarks, trademark rights, trade names, trade name rights, corporate
names, business names, trade styles, service marks, logos and general
intangibles of like nature and (iii) copyrights, in each case whether
registered, unregistered or under pending registration and, in the case of any
such that are registered or under pending registration, whether registered or
under pending registration under the laws of the United States or any other
country, (b) reissues, continuations, continuations-in-part and extensions of
any Intellectual Property referred to in clause (a), and (c) rights relating
to any Intellectual Property referred to in clause (a) or (b), including
rights under applications (whether pending under the laws of the United States
or any other country) or licenses relating thereto.
"Interest Election Request" means a request by the Borrower to
convert or continue a Revolving Loan Borrowing in accordance with
Section 2.07.
"Interest Expense" means, for any period, the sum, for the
Borrower and its Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP), of the following: (a) all interest in
respect of Indebtedness (including, without limitation, the interest component
of any payments in respect of Capital Lease Obligations) accrued or
capitalized during such period (whether or not actually paid during such
period) plus (b) the net amount payable (or minus the net amount receivable)
under Hedging Agreements during such period (whether or not actually paid or
received during such period).
"Interest Payment Date" means (a) with respect to any
ABR Revolving Loan, each Quarterly Date, (b) with respect to any Eurodollar
Loan, the last day of the Interest Period applicable to the Borrowing of which
such Loan is a part and, in the case of a Eurodollar Borrowing with an
Interest Period of more than three months' duration, each day prior to the
last day of such Interest Period that occurs at intervals of three months'
duration after the first day of such Interest Period and (c) with respect to
any Swingline Loan, the day that such Loan is required to be repaid.
<PAGE>
"Interest Period" means, with respect to any Eurodollar Borrowing,
the period commencing on the date of such Borrowing and ending on the
numerically corresponding day in the calendar month that is one, two, three or
six months thereafter, as the Borrower may elect; provided, that (i) if any
Interest Period would end on a day other than a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless such next
succeeding Business Day would fall in the next calendar month, in which case
such Interest Period shall end on the next preceding Business Day and (ii) any
Interest Period that commences on the last Business Day of a calendar month
(or on a day for which there is no numerically corresponding day in the last
calendar month of such Interest Period) shall end on the last Business Day of
the last calendar month of such Interest Period. For purposes hereof, the
date of a Borrowing initially shall be the date on which such Borrowing is
made and thereafter shall be the effective date of the most recent conversion
or continuation of such Borrowing.
"Investment" means, for any Person: (a) the acquisition (whether
for cash, property, services or securities or otherwise) of capital stock,
bonds, notes, debentures, partnership or other ownership interests or other
securities of any other Person or any agreement to make any such acquisition
(including, without limitation, any "short sale" or any sale of any securities
at a time when such securities are not owned by the Person entering into such
sale); (b) the making of any deposit with, or advance, loan or other extension
of credit to, any other Person (including the purchase of property from
another Person subject to an understanding or agreement, contingent or
otherwise, to resell such property to such Person), but excluding any such
advance, loan or extension of credit having a term not exceeding 90 days
arising in connection with the sale of inventory or supplies or the rendering
of services by such Person in the ordinary course of business; (c) the
entering into of any Guarantee of, or other contingent obligation with respect
to, Indebtedness or other Liability of any other Person and (without
duplication) any amount committed to be advanced, lent or extended to such
Person; or (d) the entering into of any Hedging Agreement.
"Issuing Banks" means The Chase Manhattan Bank and The Bank of New
York, in their respective capacities as the issuers of Letters of Credit
hereunder, and their respective successors in such capacities as provided in
Section 2.05(j).
"LC Disbursement" means a payment made by an Issuing Bank pursuant
to a Letter of Credit.
"LC Exposure" means, at any time, the sum of (a) the aggregate
undrawn amount of all outstanding Letters of Credit at such time plus (b) the
aggregate amount of all LC Disbursements that have not yet been reimbursed by
or on behalf of the Borrower at such time. The LC Exposure of any Lender at
any time shall be its Applicable Percentage of the total LC Exposure at such
time.
"Lenders" means the Persons listed on Schedule I and any other
Person that shall have become a party hereto pursuant to an Assignment and
<PAGE>
<PAGE>
Acceptance, other than any such Person that ceases to be a party hereto
pursuant to an Assignment and Acceptance. Unless the context otherwise
requires, the term "Lenders" includes the Swingline Lender.
"Letter of Credit" means any letter of credit issued pursuant to
this Agreement or any Existing Letter of Credit.
"Letter of Credit Documents" means, with respect to any Letter of
Credit, collectively, any application therefor and any other agreements,
instruments, guarantees or other documents (whether general in application or
applicable only to such Letter of Credit) governing or providing for (a) the
rights and obligations of the parties concerned or at risk with respect to
such Letter of Credit or (b) any collateral security for any of such
obligations, each as the same may be modified and supplemented and in effect
from time to time.
"Liability" of any Person means (in each case, whether with full
or limited recourse) any Indebtedness, liability, obligation, covenant or duty
of or binding upon, or any term or condition to be observed by or binding
upon, such Person or any of its assets, of any kind, nature or description,
direct or indirect, absolute or contingent, due or not due, contractual or
tortious, liquidated or unliquidated, whether arising under Contract,
Applicable Law, or otherwise, now existing or hereafter arising, and whether
or not (i) for the payment of money or the performance or non-performance of
any act or (ii) any allowable claim under the Federal Bankruptcy Code of 1978,
as amended from time to time, and includes any Indebtedness of such Person.
"LIBO Rate" means, with respect to any Eurodollar Borrowing for
any Interest Period, the rate appearing on Page 3750 of the Dow Jones Markets
Service (or on any successor or substitute page of such Service, or any
successor to or substitute for such Service, providing rate quotations
comparable to those currently provided on such page of such Service, as
determined by the Administrative Agent from time to time for purposes of
providing quotations of interest rates applicable to dollar deposits in the
London interbank market) at approximately 11:00 a.m., London time, two
Business Days prior to the commencement of such Interest Period, as the
average of the rates for dollar deposits with a maturity comparable to such
Interest Period. In the event that such rate is not available at such time
for any reason, then the LIBO Rate with respect to such Eurodollar Borrowing
for such Interest Period shall be the rate at which dollar deposits of
$5,000,000 and for a maturity comparable to such Interest Period are offered
by the principal London office of the Administrative Agent in immediately
available funds in the London interbank market at approximately 11:00 a.m.,
London time, two Business Days prior to the commencement of such Interest
Period.
"Lien" means, with respect to any asset, (a) any mortgage, deed of
trust, lien, pledge, hypothecation, encumbrance, charge or security interest
in, on or of such asset, (b) the interest of a vendor or a lessor under any
conditional sale agreement, capital lease or title retention agreement (or any
financing lease having substantially the same economic effect as any of the
<PAGE>
<PAGE>
foregoing) relating to such asset and (c) in the case of securities, any
purchase option, call or similar right of a third party with respect to such
securities.
"Loan Documents" means, collectively, this Agreement and the
Letter of Credit Documents.
"Loans" means the loans made by the Lenders to the Borrower
pursuant to this Agreement.
"Mandatorily Redeemable Stock" means, with respect to any Person,
any share of such Person's capital stock to the extent that it is (a)
redeemable, payable or required to be purchased or otherwise retired or
extinguished, or convertible into any Indebtedness or other Liability of such
Person, (i) at a fixed or determinable date, whether by operation of a sinking
fund or otherwise, (ii) at the option of any Person other than such Person or
(iii) upon the occurrence of a condition not solely within the control of such
Person, such as a redemption required to be made out of future earnings or (b)
convertible into Mandatorily Redeemable Stock.
"Margin Stock" means "margin stock" within the meaning of
Regulations G, T, U and X.
"Material Adverse Effect" means a material adverse effect on
(a) the business, assets, operations, prospects or financial condition of the
Borrower and its Subsidiaries taken as a whole, (b) the ability of any Obligor
to pay when due any amount owing by it, or to perform any of its other
material obligations, under this Agreement or any of the other Loan Documents
to which it is a party or (c) the rights of or benefits available to the
Lenders under this Agreement or any of the other Loan Documents.
"Material Indebtedness" means Indebtedness (other than the Loans
and Letters of Credit), or obligations in respect of one or more Hedging
Agreements, of any one or more of the Borrower and its Subsidiaries in an
aggregate principal amount exceeding $3,500,000. For purposes of determining
Material Indebtedness, the "principal amount" of the obligations of any Person
in respect of any Hedging Agreement at any time shall be the maximum aggregate
amount (giving effect to any netting agreements) that such Person would be
required to pay if such Hedging Agreement were terminated at such time.
"Material Subsidiary" shall mean, at any time, a Subsidiary of the
Borrower that as of such time meets the definition of a "significant
subsidiary" contained as of the date hereof in Regulation S-X of the
Securities and Exchange Commission, except that references in said Regulation
S-X to "ten percent" shall be deemed for purposes hereof to refer to "five
percent".
"Maturity Date" means the fifth anniversary of the Effective Date,
as such date may be extended pursuant to Section 2.19, but in no event shall
such date extend beyond the sixth anniversary of the Effective Date.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
<PAGE>
"Non-Core Business" means each Subsidiary or division of the
Borrower identified on Part B of Schedule VI as a Non-Core Business.
"Obligor" means the Borrower and each Subsidiary Guarantor.
"Other Taxes" means any and all present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies arising from any payment made under any Loan Document or from the
execution, delivery or enforcement of, or otherwise with respect to, any Loan
Document.
"PBGC" means the Pension Benefit Guaranty Corporation referred to
and defined in ERISA and any successor entity performing similar functions.
"Permitted Encumbrances" means:
(a) Liens imposed by law for taxes that are not yet due or are
being contested in compliance with Section 6.03;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's and other like Liens imposed by law, arising in the ordinary
course of business and securing obligations that are not overdue by more
than 30 days or are being contested in compliance with Section 6.03;
(c) pledges and deposits made, and other Liens granted, in the
ordinary course of business in compliance with workers' compensation,
unemployment insurance and other social security laws or regulations;
(d) deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, surety and appeal bonds, performance
bonds and other obligations of a like nature, in each case in the
ordinary course of business;
(e) judgment liens in respect of judgments that do not constitute
an Event of Default under clause (k) of Article VIII;
(f) easements, zoning restrictions, rights-of-way and similar
encumbrances on real property imposed by law or arising in the ordinary
course of business that do not secure any monetary obligations and do
not materially detract from the value of the affected property or
interfere with the ordinary conduct of business of the Borrower or any
Subsidiary;
(g) Liens in existence as set forth, in the case of the Borrower
and each Subsidiary, on Schedule X; and
(h) Liens incurred in connection with the acquisition or
construction of equipment or other property (real or personal) by the
Borrower or any of its Subsidiaries for a cost less than $25,000,000 in
the aggregate, provided that the principal amount of the indebtedness or
obligations so secured shall not exceed in any case 80% of the cost to
the Borrower or such Subsidiary of the equipment or other property
acquired or constructed; provided, further, that each such Lien shall
cover only the equipment or other property acquired or constructed and
the proceeds thereof, substitutions therefor and replacements thereof;
<PAGE>
and provided, further that any such Lien will attach within 120 days of the
date of such acquisition or the completion of such construction;
provided that the term "Permitted Encumbrances" shall not include any Lien
securing Indebtedness.
"Permitted Guarantee" means any Guarantee that is (i) an
endorsement of a check for collection in the ordinary course of business or
(ii) a Guarantee of and only of the obligations of the Obligors under the Loan
Documents.
"Permitted Indebtedness" means (i) the incurrence by the Borrower
or any of its Subsidiaries of Indebtedness (other than Indebtedness described
in clause (iii) hereof) in an aggregate principal amount not to exceed
$50,000,000 at any one time outstanding, less any Indebtedness of Foreign
Subsidiaries; (ii) Indebtedness of the Borrower listed on Schedule XI; (iii)
the incurrence by the Borrower or any of its Subsidiaries of Indebtedness
issued in exchange for, or the proceeds of which are used to extend,
refinance, renew, replace, defease or refund Indebtedness referred to in
clauses (i) or (ii) above ("Refinancng Indebtedness"); provided, that (x) the
principal amount of such Refinancing Indebtedness shall not exceed the
principal amount of Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded, (y) the Refinancing Indebtedness shall have a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of the Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded and the Maturity Date, and (z) the Refinancing
Indebtedness shall be ranked in right of payment to the Loan on terms at least
as favorable to the Lenders as those contained in the documentation governing
the Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded; (iv) intercompany Indebtedness arising in the ordinary course of
business owing by the Borrower to its Wholly Owned Subsidiaries; (v) the
incurrence by the Borrower of any obligations under the Hedging Agreements;
(vi) Existing Subsidiary Indebtedness and (vii) Guarantees of Indebtedness of
the Borrower's Subsidiaries incurred in accordance with the provisions of this
Agreement.
"Permitted Investments" means:
(a) Investments by the Borrower or any of its Subsidiaries in a
Person engaged in a business same or similar to the Business, if as a
result of such Investment (x) such Person becomes a Wholly Owned
Subsidiary of the Borrower and is engaged in a business same or similar
to the Business or (y) such Person is merged or consolidated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Borrower or a Wholly Owned Subsidiary of the
Borrower that is engaged in a business same or similar to the Business;
(b) Investments by the Borrower or any of its Subsidiaries in a
Person if (i) no Affiliate of the Borrower or any of its Subsidiaries
(other than another Subsidiary of the Borrower) has an Investment in
such Person, (ii) such Person is engaged in a business same or similar
to the Business, (iii) the Borrower and/or any of its Subsidiaries at
all times owns at least 50% of the total outstanding share of Capital
Securities of such Person entitled to participate in distributions in
respect of the earnings, sale or liquidation of such Person, (iv)
immediately after giving effect to such Investment on a pro forma basis
<PAGE>
(to give effect to the contribution of any property or assets to such Person
or Indebtedness incurred to fund such Investment or otherwise), the Borrower
could incur at least $1.00 of additional Indebtedness (other than Indebtedness
permitted pursuant to Section 7.11) pursuant to the provisions of Section 7.11
and (v) no default with respect to any Indebtedness of such Person of any
Subsidiary of such Person (including any right which the holders thereof may
have to take enforcement action against such Person) would permit (upon
notice, lapse of time or both) any holder of any Indebtedness of the Borrower
or any its Subsidiaries to declare a default on such Indebtedness or cause the
payment thereof to be accelerated or payable prior to its final scheduled
maturity;
(c) Investments permitted pursuant to Section 7.10(b); and
(d) Cash Equivalents.
"Permitted Restrictive Covenants" means (a) any covenant or
restriction contained in any Loan Document, (b) any covenant or restriction
binding upon any Person at the time such Person becomes a Subsidiary of the
Borrower if the same is not created in contemplation thereof, (c) any covenant
or restriction of the type contained in Section 7.02 that is contained in any
Contract evidencing or providing for the creation of or concerning purchase
money Indebtedness, to the extent that it restricts Liens on the asset
acquired with the proceeds of such Indebtedness, (d) any covenant or
restriction described in Schedule VII, but only to the extent such covenant or
restriction is there identified by specific reference to the provision of the
Contract in which such covenant or restriction is contained, (e) any covenant
or restriction contained in any GATX Document, or (f) any covenant or
restriction that (i) is not more burdensome than an existing Permitted
Restrictive Covenant that is such by virtue of clause (b), (c), (d) or (e),
(ii) is contained in a Contract constituting a renewal, extension or
replacement of the Contract in which such existing Permitted Restrictive
Covenant is contained and (iii) is binding only on the Person or Persons bound
by such existing Permitted Restrictive Covenant.
"Person" means any natural person, corporation, limited liability
company, trust, joint venture, association, company, partnership, Governmental
Authority or other entity.
"Plan" means any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or
Section 412 of the Code or Section 302 of ERISA, and in respect of which the
Borrower or any ERISA Affiliate is (or, if such plan were terminated, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"Prime Rate" means the rate of interest per annum publicly
announced from time to time by The Chase Manhattan Bank as its prime rate in
effect at its principal office in New York City; each change in the Prime Rate
shall be effective from and including the date such change is publicly
announced as being effective.
"PSA" has the meaning ascribed to such term in the definition of
Receivables Purchase Agreement.
<PAGE>
"Purchase Money Liens" means Liens upon real and/or tangible
personal property acquired after the date hereof (by purchase, construction or
otherwise) by the Borrower or any of its Subsidiaries, each of which Liens was
created solely for the purpose of securing Indebtedness representing, or
incurred to finance, refinance or refund, the cost (including the cost of
construction) of such property; provided that no such Lien shall extend to or
cover any Property of the Borrower or any of its Material Subsidiaries other
than the property so acquired and improvements thereon.
"Quarterly Dates" means the last Business Day of March, June,
September and December in each year, the first of which shall be the first
such day after the date hereof.
"Receivables Purchase Agreement" means (x) the Amended and
Restated Purchase Agreement, dated as of June 24, 1993 among Sequa Receivables
Corp., the Borrower, certain financial institutions listed on the signature
pages thereto, as Purchasers, and Chemical Bank, as Managing Agent for the
Purchasers and (y) any renewal, extension, refinancing or replacement thereof
or successor agreement thereto, provided that, with respect to performance
requirements or restrictions placed on the Borrower and its Subsidiaries by
the terms thereof and Liens granted on the assets of the Borrower or its
Subsidiaries pursuant thereto, any such renewal, extension, refinancing or
replacement thereof or successor agreement thereto be on terms no more
restrictive or extensive than the Receivables Purchase Agreement as in effect
on the Effective Date.
"Register" has the meaning set forth in Section 10.04.
"Related Parties" means, with respect to any specified Person,
such Person's Affiliates and the respective directors, officers, employees,
agents and advisors of such Person and such Person's Affiliates.
"Required Lenders" means, at any time, Lenders having Revolving
Exposures and unused Commitments representing at least 66-2/3% of the sum of
the total Revolving Exposures and unused Commitments at such time.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Payment" means (a) any dividend or distribution on
account of the Borrower's or any of its Subsidiary's Equity Interests (other
than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Borrower or such Subsidiary or dividends or
distributions payable to the Borrower or any of its Subsidiaries); (b) the
purchase, redemption or other acquisition or retirement for value of any
Equity Interests of the Borrower, or any Subsidiary or other Affiliate of the
Borrower (other than any such Equity Interests owned by the Borrower or any
Wholly Owned Subsidiary of the Borrower and other than Permitted Investments);
(c) any principal payment on, purchase, redemption, retirement, defeasance,
prepayment, decrease or other acquisition or retirement for value prior to a
scheduled final maturity, scheduled repayment or scheduled mandatory sinking
fund payment date or maturity date of any Indebtedness of the Borrower that is
subordinated or junior in right of payment to the Loans; or (d) any Restricted
Investment.
<PAGE>
"Revolving Exposure" means, with respect to any Lender at any
time, the sum of the outstanding principal amount of such Lender's Revolving
Loans and its LC Exposure and Swingline Exposure at such time.
"Revolving Loan" means a Loan made pursuant to Section 2.03.
"S&P" means Standard & Poor's Ratings Services.
"Sale and Leaseback Transaction" means any arrangement, directly
or indirectly, entered into with any person whereby the Borrower or any
Subsidiary of the Borrower shall sell or transfer any property, real or
personal, and used or useful in its business, whether now owned or hereafter
acquired, and thereafter rent or lease such property or other property which
the Borrower or such Subsidiary intends to use for substantially the same
purpose or purposes as the property being sold or transferred.
"SCC" means Sequa Capital Corporation, a New York corporation.
"SFC" means Sequa Financial Corporation, a New York corporation.
"Short Term Indebtedness for Money Borrowed" means, at the time
any determination thereof is to be made, all Indebtedness of the Borrower and
its Subsidiaries (determined on consolidated basis without duplication in
accordance with GAAP), maturing on demand or having a maturity at the time
such Indebtedness is incurred of 12 months or less and any other Indebtedness
of the Borrower and its Subsidiaries which under GAAP would be included as a
current Liability on a balance sheet of such Person at such time (other than
Indebtedness which when incurred had a maturity of 12 months or more), in each
case other than the Loans.
"Statutory Reserve Rate" means a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator of
which is the number one minus the aggregate of the maximum reserve percentages
(including any marginal, special, emergency or supplemental reserves)
expressed as a decimal established by the Board to which the Administrative
Agent is subject (a) with respect to the Base CD Rate, for new negotiable
nonpersonal time deposits in dollars of over $100,000 with maturities
approximately equal to three months and (b) with respect to the Adjusted LIBO
Rate, for eurocurrency funding (currently referred to as "Eurocurrency
Liabilities" in Regulation D of the Board). Such reserve percentages shall
include those imposed pursuant to such Regulation D. Eurodollar Loans shall
be deemed to constitute eurocurrency funding and to be subject to such reserve
requirements without benefit of or credit for proration, exemptions or offsets
that may be available from time to time to any Lender under such Regulation D
or any comparable regulation. The Statutory Reserve Rate shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.
"Subsidiary" means, with respect to any Person (the "parent") at
any date, any corporation, limited liability company, partnership, association
or other entity the accounts of which would be consolidated with those of the
parent in the parent's consolidated financial statements if such financial
statements were prepared in accordance with GAAP as of such date, as well as
any other corporation, limited liability company, partnership, association or
other entity (a) of which securities or other ownership interests representing
more than 50% of the equity or more than 50% of the ordinary voting power or,
<PAGE>
in the case of a partnership, more than 50% of the general partnership
interests are, as of such date, owned, controlled or held, or (b) that is, as
of such date, otherwise Controlled, by the parent or one or more subsidiaries
of the parent or by the parent and one or more subsidiaries of the parent.
Unless otherwise specified, "Subsidiary" means a subsidiary of the Borrower.
"Subsidiary Guarantor" means each of the Subsidiaries of the
Borrower identified under the caption "SUBSIDIARY GUARANTORS" on the signature
pages hereto and each Subsidiary of the Borrower that becomes a "Subsidiary
Guarantor" after the date hereof pursuant to Section 6.07.
"Swingline Exposure" means, at any time, the aggregate principal
amount of all Swingline Loans outstanding at such time. The Swingline
Exposure of any Lender at any time shall be its Applicable Percentage of the
total Swingline Exposure at such time.
"Swingline Lender" means The Chase Manhattan Bank, in its capacity
as lender of Swingline Loans hereunder.
"Swingline Loan" means a Loan made pursuant to Section 2.04.
"Taxes" means any and all present or future taxes, levies,
imposts, duties, deductions, charges or withholdings imposed by any
Governmental Authority.
"Three-Month Secondary CD Rate" means, for any day, the secondary
market rate for three-month certificates of deposit reported as being in
effect on such day (or, if such day is not a Business Day, the next preceding
Business Day) by the Board through the public information telephone line of
the Federal Reserve Bank of New York (which rate will, under the current
practices of the Board, be published in Federal Reserve Statistical Release
H.15(519) during the week following such day) or, if such rate is not so
reported on such day or such next preceding Business Day, the average of the
secondary market quotations for three-month certificates of deposit of major
money center banks in New York City received at approximately 10:00 a.m., New
York City time, on such day (or, if such day is not a Business Day, on the
next preceding Business Day) by the Administrative Agent from three negotiable
certificate of deposit dealers of recognized standing selected by it.
"Transactions" means the execution, delivery and performance by
each Obligor of this Agreement and the other Loan Documents to which such
Obligor is intended to be a party, the borrowing of Loans, the use of the
proceeds thereof and the issuance of Letters of Credit hereunder.
"Type", when used in reference to any Loan or Borrowing, refers to
whether the rate of interest on such Loan, or on the Loans comprising such
Borrowing, is determined by reference to the Adjusted LIBO Rate or the
Alternate Base Rate.
"Unfunded Benefit Liabilities" means with respect to any Plan at
any time, the amount of unfunded benefit liabilities of such Plan at such time
as determined under ERISA Section 4001(a)(18).
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the
then outstanding aggregate principal amount of such Indebtedness into (ii) the
<PAGE>
total of the product obtained by multiplying (x) the amount of each then
remaining installment, sinking fund, serial maturity or other required payment
of principal, including payment of final maturity, in respect thereof, by (y)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Subsidiary" means any Subsidiary all of the capital
securities and all other ownership interests and rights to acquire ownership
interests of which (except directors' qualifying shares) are, directly or
indirectly, owned or controlled by the Borrower or one or more Wholly Owned
Subsidiaries or by the Borrower and one or more of such Subsidiaries.
"Withdrawal Liability" means Liability to a Multiemployer Plan as
a result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Classification of Loans and Borrowings. For
purposes of this Agreement, Loans may be classified and referred to by Class
(e.g., a "Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by Class
and Type (e.g., an "ABR Revolving Loan"). Borrowings also may be classified
and referred to by Class (e.g., a "Revolving Loan Borrowing") or by Type
(e.g., a "Eurodollar Borrowing") or by Class and Type (e.g., an "ABR
Borrowing").
SECTION 1.03. Terms Generally. The definitions of terms herein
shall apply equally to the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
The word "will" shall be construed to have the same meaning and effect as the
word "shall". Unless the context requires otherwise (a) any definition of or
reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth
herein), (b) any reference herein to any Person shall be construed to include
such Person's successors and assigns, (c) the words "herein", "hereof" and
"hereunder", and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (d) all
references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement and (e) the words "asset" and "property" shall be construed to
have the same meaning and effect and to refer to any and all tangible and
intangible assets and properties, including cash, securities, accounts and
contract rights.
SECTION 1.04. Accounting Terms; GAAP. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature
shall be construed in accordance with GAAP, as in effect from time to time;
provided that, if the Borrower notifies the Administrative Agent that the
Borrower requests an amendment to any provision hereof to eliminate the effect
of any change occurring after the date hereof in GAAP or in the application
thereof on the operation of such provision (or if the Administrative Agent
notifies the Borrower that the Required Lenders request an amendment to any
provision hereof for such purpose), regardless of whether any such notice is
given before or after such change in GAAP or in the application thereof, then
<PAGE>
such provision shall be interpreted on the basis of GAAP as in effect and
applied immediately before such change shall have become effective until such
notice shall have been withdrawn or such provision amended in accordance
herewith.
ARTICLE II
THE CREDITS
SECTION 2.01. The Commitments. Subject to the terms and
conditions set forth herein, each Lender agrees to make Revolving Loans to the
Borrower from time to time during the Availability Period in an aggregate
principal amount that will not result in (a) such Lender's Revolving Exposure
exceeding such Lender's Commitment or (b) the total Revolving Exposures
exceeding the total Commitments. Within the foregoing limits and subject to
the terms and conditions set forth herein, the Borrower may borrow, prepay and
reborrow Revolving Loans.
SECTION 2.02. Loans and Borrowings.
(a) Each Revolving Loan shall be made as part of a Borrowing
consisting of Loans of the same Type made by the Lenders ratably in accordance
with their respective Commitments. The failure of any Lender to make any Loan
required to be made by it shall not relieve any other Lender of its
obligations hereunder; provided that the Commitments of the Lenders are
several and no Lender shall be responsible for any other Lender's failure to
make Loans as required.
(b) Subject to Section 2.13, each Revolving Loan Borrowing shall
be comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may
request in accordance herewith. Each Swingline Loan shall be an ABR Loan.
Each Lender at its option may make any Eurodollar Loan by causing any domestic
or foreign branch or Affiliate of such Lender to make such Loan; provided that
any exercise of such option shall not affect the obligation of the Borrower to
repay such Loan in accordance with the terms of this Agreement.
(c) At the commencement of each Interest Period for any
Eurodollar Borrowing, such Borrowing shall be in an aggregate amount of
$5,000,000 or a larger multiple of $1,000,000. At the time that each ABR
Revolving Loan Borrowing is made, such Borrowing shall be in an aggregate
amount equal to $5,000,000 or a larger multiple of $1,000,000; provided that
an ABR Revolving Loan Borrowing may be in an aggregate amount that is equal to
the entire unused balance of the total Commitments. Each Swingline Loan shall
be in an amount equal to $1,000,000 or a larger multiple of $500,000.
Borrowings of more than one Type and Class may be outstanding at the same
time; provided that there shall not at any time be more than a total of seven
Eurodollar Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, the
Borrower shall not be entitled to request, or to elect to convert or continue,
any Borrowing if the Interest Period requested with respect thereto would end
after the Maturity Date.
SECTION 2.03. Requests for Revolving Loan Borrowings. To request
a Revolving Loan Borrowing, the Borrower shall notify the Administrative Agent
<PAGE>
of such request by telephone (a) in the case of a Eurodollar Revolving
Borrowing, not later than 11:00 a.m., New York City time, three Business Days
before the date of the proposed Borrowing or (b) in the case of an ABR
Borrowing, not later than 11:00 a.m., New York City time, one Business Day
before the date of the proposed Borrowing; provided that any such notice of an
ABR Borrowing to finance the reimbursement of an LC Disbursement as
contemplated by Section 2.05(f) may be given not later than 10:00 a.m., New
York City time, on the date of the proposed Borrowing. Each such telephonic
Borrowing Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written Borrowing
Request in a form approved by the Administrative Agent and signed by the
Borrower. Each such telephonic and written Borrowing Request shall specify
the following information in compliance with Section 2.02:
(i) the aggregate principal amount of the requested
Borrowing;
(ii) the date of such Borrowing, which shall be a Business
Day;
(iii) whether such Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing;
(iv) in the case of a Eurodollar Borrowing, the initial
Interest Period to be applicable thereto, which shall be a period
contemplated by the definition of the term "Interest Period"; and
(v) the location and number of the Borrower's account to
which funds are to be disbursed, which shall comply with the
requirements of Section 2.06.
If no election as to the Type of Revolving Loan Borrowing is specified, then
the requested Revolving Loan Borrowing shall be an ABR Borrowing. If no
Interest Period is specified with respect to any requested Eurodollar
Borrowing, then the Borrower shall be deemed to have selected an Interest
Period of one month's duration. Promptly following receipt of a Borrowing
Request in accordance with this Section, the Administrative Agent shall advise
each Lender of the details thereof and of the amount of such Lender's Loan to
be made as part of the requested Borrowing.
SECTION 2.04. Swingline Loans.
(a) Subject to the terms and conditions set forth herein, the
Swingline Lender agrees to make Swingline Loans to the Borrower from time to
time during the Availability Period, in an aggregate principal amount at any
time outstanding that will not result in (i) the aggregate principal amount of
outstanding Swingline Loans exceeding $10,000,000 or (ii) the total Revolving
Exposures exceeding the total Commitments; provided that the Swingline Lender
shall not be required to make a Swingline Loan to refinance an outstanding
Swingline Loan. Within the foregoing limits and subject to the terms and
conditions set forth herein, the Borrower may borrow, prepay and reborrow
Swingline Loans. The principal amount of outstanding Swingline Loans shall
constitute utilization of the Commitments.
(b) To request a Swingline Loan, the Borrower shall notify the
Administrative Agent of such request by telephone (confirmed by telecopy), not
<PAGE>
later than 12:00 noon, New York City time, on the day of a proposed Swingline
Loan. Each such notice shall be irrevocable and shall specify the requested
date (which shall be a Business Day) and amount of the requested Swingline
Loan (which shall be $1,000,000 or increments of $1,000,000 in excess
thereof). The Administrative Agent will promptly advise the Swingline Lender
of any such notice received from the Borrower. The Swingline Lender shall
make each Swingline Loan available to the Borrower by means of a wire transfer
of immediately available funds to an account at a commercial bank in New York
City designated by the Borrower in the applicable borrowing request (or, in
the case of a Swingline Loan made to finance the reimbursement of an LC
Disbursement as provided in Section 2.05(f), by remittance to the applicable
Issuing Bank) by 3:00 p.m., New York City time, on the requested date of such
Swingline Loan.
(c) The Swingline Lender may by written notice given to the
Administrative Agent not later than 10:00 a.m., New York City time, on any
Business Day require the Lenders to acquire participations on such Business
Day in all or a portion of the Swingline Loans outstanding. Such notice to
the Administrative Agent shall specify the aggregate amount of Swingline Loans
in which Lenders will participate. If any such Swingline Loans are Fixed Rate
Swingline Loans, then, upon the furnishing of such notice by the Swingline
Lender, the Fixed Rate Swingline Periods for such Swingline Loans shall
automatically terminate and such Swingline Loans shall automatically cease to
be Fixed Rate Swingline Loans. Promptly upon receipt of such notice, the
Administrative Agent will give notice thereof to each Lender, specifying in
such notice such Lender's Applicable Percentage of such Swingline Loan or
Loans. Each Lender hereby absolutely and unconditionally agrees, upon receipt
of notice as provided above in this paragraph, to pay to the Administrative
Agent, for the account of the Swingline Lender, such Lender's Applicable
Percentage of such Swingline Loan or Loans. Each Lender acknowledges and
agrees that its obligation to acquire participations in Swingline Loans
pursuant to this paragraph is absolute and unconditional and shall not be
affected by any circumstance whatsoever, including the occurrence and
continuance of a Default or reduction or termination of the Commitments, and
that each such payment shall be made without any offset, abatement,
withholding or reduction whatsoever. Each Lender shall comply with its
obligation under this paragraph by wire transfer of immediately available
funds, in the same manner as provided in Section 2.06 with respect to Loans
made by such Lender (and Section 2.06 shall apply, mutatis mutandis, to the
payment obligations of the Lenders), and the Administrative Agent shall
promptly pay to the Swingline Lender the amounts so received by it from the
Lenders. The Administrative Agent shall notify the Borrower of any
participations in any Swingline Loan acquired pursuant to this paragraph, and
thereafter payments in respect of such Swingline Loan shall be made to the
Administrative Agent and not to the Swingline Lender. Any amounts received by
the Swingline Lender from the Borrower (or other party on behalf of the
Borrower) in respect of a Swingline Loan after receipt by the Swingline Lender
of the proceeds of a sale of participations therein shall be promptly remitted
to the Administrative Agent; any such amounts received by the Administrative
Agent shall be promptly remitted by the Administrative Agent to the Lenders
that shall have made their payments pursuant to this paragraph and to the
Swingline Lender, as their interests may appear. The purchase of
participations in a Swingline Loan pursuant to this paragraph shall not
relieve the Borrower of any default in the payment thereof.
<PAGE>
(d) The Borrower and the Swingline Lender may, prior to the
making of any Swingline Loan, agree that the interest rate on such Swingline
Loan shall be fixed for a mutually agreeable period at a mutually agreeable
rate, which agreement shall be irrevocable and shall be promptly confirmed in
writing by the Swingline Lender (provided that the failure so to confirm such
agreement shall not affect the validity thereof). Such period is referred to
herein as the "Fixed Rate Swingline Period" for such Swingline Loan and such
Swingline Loan is referred to herein as a "Fixed Rate Swingline Loan";
provided that, upon the termination of such Fixed Rate Swingline Period
pursuant to Section 2.04(c), such Swingline Loan shall cease to be a Fixed
Rate Swingline Loan.
SECTION 2.05. Letters of Credit.
(a) General. Subject to the terms and conditions set forth
herein, in addition to the Loans provided for in Section 2.01, the Borrower
may request an Issuing Bank to issue, and such Issuing Bank shall issue, at
any time and from time to time during the period from and including the
Effective Date to but excluding the date that is five Business Days prior to
the Maturity Date, Letters of Credit for the account of the Borrower, any
Subsidiary of the Borrower or any business division of the Borrower or a
Subsidiary of the Borrower in such form as is acceptable to such Issuing Bank
in its reasonable determination. Letters of Credit issued hereunder shall
constitute utilization of the Commitments.
(b) Notice of Issuance, Amendment, Renewal or Extension. To
request the issuance of a Letter of Credit (or the amendment, renewal or
extension of an outstanding Letter of Credit), the Borrower shall hand deliver
or telecopy (or transmit by electronic communication, if arrangements for
doing so have been approved by the applicable Issuing Bank) to the applicable
Issuing Bank and the Administrative Agent (reasonably in advance of the
requested date of issuance, amendment, renewal or extension) a notice
requesting the issuance of a Letter of Credit, or identifying the Letter of
Credit to be amended, renewed or extended, and specifying the date of
issuance, amendment, renewal or extension (which shall be a Business Day), the
date on which such Letter of Credit is to expire (which shall comply with
paragraph (d) of this Section), the amount of such Letter of Credit, the name
and address of the beneficiary thereof and such other information as shall be
necessary to prepare, amend, renew or extend such Letter of Credit. If
requested by the applicable Issuing Bank, the Borrower also shall submit a
letter of credit application on such Issuing Bank's standard form in
connection with any request for a Letter of Credit. In the event of any
inconsistency between the terms and conditions of this Agreement and the terms
and conditions of any form of letter of credit application or other agreement
submitted by the Borrower to, or entered into by the Borrower with, the
applicable Issuing Bank relating to any Letter of Credit, the terms and
conditions of this Agreement shall control.
(c) Limitations on Amounts. A Letter of Credit shall be issued,
amended, renewed or extended only if (and upon issuance, amendment, renewal or
extension of each Letter of Credit the Borrower shall be deemed to represent
and warrant that), after giving effect to such issuance, amendment, renewal or
extension (i) the aggregate LC Exposure of all Issuing Banks (determined for
these purposes without giving effect to the participations therein of the
Lenders pursuant to paragraph (e) of this Section) shall not exceed
<PAGE>
$75,000,000 and (ii) the total Revolving Exposures shall not exceed the total
Commitments.
(d) Expiration Date. Each Letter of Credit shall expire at or
prior to the close of business on the earlier of (i) the date 12 months after
the date of the issuance of such Letter of Credit (or, in the case of any
renewal or extension thereof, automatically by its terms or otherwise, 12
months after such renewal or extension) and (ii) the date that is five
Business Days prior to the Maturity Date.
(e) Participations. By the issuance of a Letter of Credit (or an
amendment to a Letter of Credit increasing the amount thereof) by an Issuing
Bank, or, in the case of the Existing Letters of Credit by maintaining such
Letters of Credit on the Effective Date, and without any further action on the
part of such Issuing Bank or the Lenders, such Issuing Bank hereby grants to
each Lender, and each Lender hereby acquires from such Issuing Bank, a
participation in such Letter of Credit equal to such Lender's Applicable
Percentage of the aggregate amount available to be drawn under such Letter of
Credit. Each Lender acknowledges and agrees that its obligation to acquire
participations pursuant to this paragraph in respect of Letters of Credit is
absolute and unconditional and shall not be affected by any circumstance
whatsoever, including any amendment, renewal or extension of any Letter of
Credit or the occurrence and continuance of a Default or reduction or
termination of the Commitments, and that each such payment shall be made
without any offset, abatement, withholding or reduction whatsoever.
In consideration and in furtherance of the foregoing, each Lender
hereby absolutely and unconditionally agrees to pay to the Administrative
Agent, for the account of the applicable Issuing Bank, such Lender's
Applicable Percentage of each LC Disbursement made by such Issuing Bank
promptly upon the request of such Issuing Bank at any time from the time of
such LC Disbursement until such LC Disbursement is reimbursed by the Borrower
or at any time after any reimbursement payment is required to be refunded to
the Borrower for any reason. Each such payment shall be made in the same
manner as provided in Section 2.06 with respect to Loans made by such Lender
(and Section 2.06 shall apply, mutatis mutandis, to the payment obligations of
the Lenders), and the Administrative Agent shall promptly pay to the
applicable Issuing Bank the amounts so received by it from the Lenders.
Promptly following receipt by the Administrative Agent of any payment from the
Borrower pursuant to the next following paragraph, the Administrative Agent
shall distribute such payment to the applicable Issuing Bank or, to the extent
that the Lenders have made payments pursuant to this paragraph to reimburse
such Issuing Bank, then to such Lenders and such Issuing Bank as their
interests may appear. Any payment made by a Lender pursuant to this paragraph
to reimburse the applicable Issuing Bank for any LC Disbursement shall not
constitute a Loan and shall not relieve the Borrower of its obligation to
reimburse such LC Disbursement.
(f) Reimbursement. If an Issuing Bank shall make any LC
Disbursement in respect of a Letter of Credit, the Borrower shall reimburse
such Issuing Bank in respect of such LC Disbursement by paying to the
Administrative Agent an amount equal to such LC Disbursement not later than
12:00 noon, New York City time, on (i) the Business Day that the Borrower
receives notice of such LC Disbursement, if such notice is received prior to
10:00 a.m., New York City time, or (ii) the Business Day immediately following
<PAGE>
the day that the Borrower receives such notice, if such notice is not received
prior to such time.
If the Borrower fails to make such payment when due, the
Administrative Agent shall notify each Lender of the applicable LC
Disbursement, the payment then due from the Borrower in respect thereof and
such Lender's Applicable Percentage thereof.
(g) Obligations Absolute. The Borrower's obligation to reimburse
LC Disbursements as provided in paragraph (f) of this Section shall be
absolute, unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement under any and all circumstances
whatsoever and irrespective of (i) any lack of validity or enforceability of
any Letter of Credit, or any term or provision therein, (ii) any draft or
other document presented under a Letter of Credit proving to be forged,
fraudulent or invalid in any respect or any statement therein being untrue or
inaccurate in any respect, (iii) payment by an Issuing Bank under a Letter of
Credit against presentation of a draft or other document that does not comply
strictly with the terms of such Letter of Credit, so long as such draft or
other document substantially complies with the terms of such Letter of Credit,
(iv) any other event or circumstance whatsoever, whether or not similar to any
of the foregoing, that might, but for the provisions of this Section,
constitute a legal or equitable discharge of the Borrower's obligations
hereunder and (v) the identity of the account party of a Letter of Credit.
Neither the Administrative Agent, the Lenders nor the Issuing
Banks, nor any of their Related Parties, shall have any Liability or
responsibility by reason of or in connection with the issuance or transfer of
any Letter of Credit by the Issuing Banks or any payment or failure to make
any payment thereunder (irrespective of any of the circumstances referred to
in the preceding sentence), or any error, omission, interruption, loss or
delay in transmission or delivery of any draft, notice or other communication
under or relating to any Letter of Credit (including any document required to
make a drawing thereunder), any error in interpretation of technical terms or
any consequence arising from causes beyond the control of the Issuing Banks;
provided that the foregoing shall not be construed to excuse the applicable
Issuing Bank from Liability to the Borrower to the extent of any direct
damages (as opposed to consequential damages, claims in respect of which are
hereby waived by the Borrower to the extent permitted by Applicable Law)
suffered by the Borrower that are caused by such Issuing Bank's gross
negligence or wilful misconduct when determining whether drafts and other
documents presented under a Letter of Credit comply with the terms thereof.
The parties hereto expressly agree that:
(i) the Issuing Banks may accept documents that appear on
their face to be in substantial compliance with the terms of a Letter of
Credit without responsibility for further investigation, regardless of
any notice or information to the contrary, and may make payment upon
presentation of documents that appear on their face to be in substantial
compliance with the terms of such Letter of Credit;
(ii) the Issuing Banks shall have the right, in their sole
discretion, to decline to accept such documents and to make such payment
if such documents are not in strict compliance with the terms of such
Letter of Credit; and
<PAGE>
(iii) this sentence shall establish the standard of care to be
exercised by the Issuing Banks when determining whether drafts and other
documents presented under a Letter of Credit comply with the terms
thereof (and the parties hereto hereby waive, to the extent permitted by
Applicable Law, any standard of care inconsistent with the foregoing).
(h) Disbursement Procedures. Each Issuing Bank shall, within a
reasonable time following its receipt thereof, examine all documents
purporting to represent a demand for payment under a Letter of Credit issued
by it. Such Issuing Bank shall promptly after such examination notify the
Administrative Agent and the Borrower by telephone (confirmed by telecopy) of
such demand for payment and whether such Issuing Bank has made or will make an
LC Disbursement thereunder; provided that any failure to give or delay in
giving such notice shall not relieve the Borrower of its obligation to
reimburse such Issuing Bank and the Lenders with respect to any such LC
Disbursement.
(i) Interim Interest. If an Issuing Bank shall make any LC
Disbursement, then, unless the Borrower shall reimburse such LC Disbursement
in full on the date such LC Disbursement is made, the unpaid amount thereof
shall bear interest, for each day from and including the date such LC
Disbursement is made to but excluding the date that the Borrower reimburses
such LC Disbursement, at the rate per annum then applicable to ABR Revolving
Loans; provided that, if the Borrower fails to reimburse such LC Disbursement
when due pursuant to paragraph (f) of this Section, then Section 2.12(c) shall
apply. Interest accrued pursuant to this paragraph shall be for the account
of such Issuing Bank, except that interest accrued on and after the date of
payment by any Lender pursuant to paragraph (f) of this Section to reimburse
such Issuing Bank shall be for the account of such Lender to the extent of
such payment.
(j) Replacement of an Issuing Bank. An Issuing Bank may be
replaced at any time by written agreement among the Borrower, the
Administrative Agent, the replaced Issuing Bank and the successor Issuing
Bank. The Administrative Agent shall notify the Lenders of any such
replacement of an Issuing Bank. At the time any such replacement shall become
effective, the Borrower shall pay all unpaid fees accrued for the account of
the replaced Issuing Bank pursuant to Section 2.11(b). From and after the
effective date of any such replacement, (i) the successor Issuing Bank shall
have all the rights and obligations of the replaced Issuing Bank under this
Agreement with respect to Letters of Credit to be issued thereafter and
(ii) references herein to the term "Issuing Bank" shall be deemed to refer to
such successor or to any previous Issuing Bank, or to such successor and all
previous Issuing Banks, as the context shall require. After the replacement
of an Issuing Bank hereunder, the replaced Issuing Bank shall remain a party
hereto and shall continue to have all the rights and obligations of an Issuing
Bank under this Agreement with respect to Letters of Credit issued by it prior
to such replacement, but shall not be required to issue additional Letters of
Credit.
(k) Cash Collateralization. If an Event of Default shall occur
and be continuing and the Borrower receives notice from the Administrative
Agent or the Required Lenders (or, if the maturity of the Loans has been
accelerated, Lenders with LC Exposure representing greater than at least
66-2/3% of the total LC Exposure) demanding the deposit of cash collateral
pursuant to this paragraph, the Borrower shall immediately deposit into an
<PAGE>
account with the Administrative Agent, in the name of the Administrative Agent
and for the benefit of the Lenders, an amount in cash equal to the LC Exposure
as of such date plus any accrued and unpaid interest thereon; provided that
the obligation to deposit such cash collateral shall become effective
immediately, and such deposit shall become immediately due and payable,
without demand or other notice of any kind, upon the occurrence of any Event
of Default with respect to the Borrower described in clause (h) or (i) of
Article VIII. Such deposit shall be held by the Administrative Agent as
collateral for the LC Exposure under this Agreement.
(l) Monthly Notices. Promptly following the end of each calendar
month, each Issuing Bank shall deliver (through the Administrative Agent) to
each lender and the Borrower a notice describing the aggregate amount of all
LC Exposures at the end of such month. Upon the request of any Lender from
time to time, each Issuing Bank shall deliver any other information reasonably
requested by such lender with respect to each LC Exposure.
SECTION 2.06. Funding of Borrowings.
(a) Each Lender shall make each Loan to be made by it hereunder
on the proposed date thereof by wire transfer of immediately available funds
by 12:00 noon, New York City time, to the account of the Administrative Agent
most recently designated by it for such purpose by notice to the Lenders;
provided that Swingline Loans shall be made as provided in Section 2.04. The
Administrative Agent will make such Loans available to the Borrower by
promptly remitting the amounts so received by wire transfer of immediately
available funds to an account at a commercial bank in New York City designated
by the Borrower; provided that ABR Borrowings made to finance the
reimbursement of an LC Disbursement as provided in Section 2.05(f) shall be
remitted by the Administrative Agent to the applicable Issuing Bank.
(b) Unless the Administrative Agent shall have received notice
from a Lender prior to the proposed date of any Borrowing that such Lender
will not make available to the Administrative Agent such Lender's share of
such Borrowing, the Administrative Agent may assume that such Lender has made
such share available on such date in accordance with paragraph (a) of this
Section and may, in reliance upon such assumption, make available to the
Borrower a corresponding amount. In such event, if a Lender has not in fact
made its share of the applicable Borrowing available to the Administrative
Agent, then the applicable Lender and the Borrower severally agree to pay to
the Administrative Agent forthwith on demand such corresponding amount with
interest thereon, for each day from and including the date such amount is made
available to the Borrower to but excluding the date of payment to the
Administrative Agent, at (i) in the case of such Lender, the Federal Funds
Effective Rate or (ii) in the case of the Borrower, the interest rate
applicable to ABR Loans. If such Lender pays such amount to the
Administrative Agent, then such amount shall constitute such Lender's Loan
included in such Borrowing.
SECTION 2.07. Interest Elections.
(a) Each Revolving Loan Borrowing initially shall be of the Type
specified in the applicable Borrowing Request and, in the case of a Eurodollar
Borrowing, shall have an initial Interest Period as specified in such
Borrowing Request. Thereafter, the Borrower may elect to convert such
Borrowing to a different Type or to continue such Borrowing and, in the case
<PAGE>
of a Eurodollar Borrowing, may elect Interest Periods therefor, all as
provided in this Section. The Borrower may elect different options with
respect to different portions of the affected Borrowing, in which case each
such portion shall be allocated ratably among the Lenders holding the Loans
comprising such Borrowing, and the Loans comprising each such portion shall be
considered a separate Borrowing. This Section shall not apply to Swingline
Loan Borrowings, which may not be converted or continued, provided that
Revolving Loan Borrowings may be used to repay Swingline Loans.
(b) To make an election pursuant to this Section, the Borrower
shall notify the Administrative Agent of such election by telephone by the
time that a Borrowing Request would be required under Section 2.03 if the
Borrower were requesting a Revolving Loan Borrowing of the Type resulting from
such election to be made on the effective date of such election. Each such
telephonic Interest Election Request shall be irrevocable and shall be
confirmed promptly by hand delivery or telecopy to the Administrative Agent of
a written Interest Election Request in a form approved by the Administrative
Agent and signed by the Borrower.
(c) Each telephonic and written Interest Election Request shall
specify the following information in compliance with Section 2.02:
(i) the Borrowing to which such Interest Election Request
applies and, if different options are being elected with respect to
different portions thereof, the portions thereof to be allocated to each
resulting Borrowing (in which case the information to be specified
pursuant to clauses (iii) and (iv) of this paragraph shall be specified
for each resulting Borrowing);
(ii) the effective date of the election made pursuant to such
Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing
or a Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the
Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of the
term "Interest Period."
If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration.
(d) Promptly following receipt of an Interest Election Request,
the Administrative Agent shall advise each Lender of the details thereof and
of such Lender's portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Interest Election
Request with respect to a Eurodollar Borrowing prior to the end of the
Interest Period applicable thereto, then, unless such Borrowing is repaid as
provided herein, at the end of such Interest Period such Borrowing shall be
converted to an ABR Borrowing. Notwithstanding any contrary provision hereof,
if an Event of Default has occurred and is continuing and the Administrative
Agent, at the request of the Required Lenders, so notifies the Borrower, then,
so long as an Event of Default is continuing (i) no outstanding Revolving Loan
<PAGE>
Borrowing may be converted to or continued as a Eurodollar Borrowing and
(ii) unless repaid, each Eurodollar Borrowing shall be converted to an ABR
Borrowing at the end of the Interest Period applicable thereto.
SECTION 2.08. Termination and Reduction of the Commitments.
(a) Unless previously terminated, the Commitments shall terminate
on the Maturity Date.
(b) The Borrower may at any time terminate, or from time to time
reduce, the Commitments; provided that (i) each reduction of the Commitments
shall be in an amount that is $5,000,000 or in increments of $1,000,000 in
excess thereof and (ii) the Borrower shall not terminate or reduce the
Commitments if, after giving effect to any concurrent prepayment of the Loans
in accordance with Section 2.10, the total Revolving Exposures would exceed
the total Commitments.
(c) The Borrower shall notify the Administrative Agent of any
election to terminate or reduce the Commitments under paragraph (b) of this
Section at least three Business Days prior to the effective date of such
termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any notice, the Administrative Agent
shall advise the Lenders of the contents thereof. Each notice delivered by
the Borrower pursuant to this Section shall be irrevocable; provided that a
notice of termination of the Commitments delivered by the Borrower may state
that such notice is conditioned upon the effectiveness of other credit
facilities, in which case such notice may be revoked by the Borrower (by
notice to the Administrative Agent on or prior to the specified effective
date) if such condition is not satisfied.
(d) Any termination or reduction of the Commitments shall be
permanent. Each reduction of the Commitments shall be made ratably among the
Lenders in accordance with their respective Commitments.
SECTION 2.09. Repayment of Loans; Evidence of Debt.
(a) The Borrower hereby unconditionally promises to pay (i) to
the Administrative Agent for the account of each Lender the then unpaid
principal amount of each Revolving Loan of such Lender on the Maturity Date
and (ii) to the Swingline Lender the then unpaid principal amount of (x) each
Swingline Loan (other than a Fixed Rate Swingline Loan) on the first date
after such Swingline Loan is made that is the 15th or last day of a calendar
month and is at least two Business Days after such Swingline Loan is made and
(y) each Fixed Rate Swingline Loan on the last day of the Fixed Rate Swingline
Period for such Swingline Loan as originally in effect (irrespective of the
termination of such Fixed Rate Swingline Period by operation of Section
2.07(c)); provided that (A) each Swingline Loan shall be repaid on the
Maturity Date and (B) on each date that a Revolving Loan Borrowing is made,
the Borrower shall repay all Swingline Loans (other than Fixed Rate Swingline
Loans) then outstanding.
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing the indebtedness of the Borrower to
such Lender resulting from each Loan made by such Lender, including the
amounts of principal and interest payable and paid to such Lender from time to
time hereunder.
<PAGE>
(c) The Administrative Agent shall maintain accounts in which it
shall record (i) the amount of each Loan made hereunder, the Class and Type
thereof and the Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to each Lender hereunder and (iii) the amount of any sum received by
the Administrative Agent hereunder for the account of the Lenders and each
Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to
paragraph (b) or (c) of this Section shall be prima facie evidence of the
existence and amounts of the obligations recorded therein; provided that the
failure of any Lender or the Administrative Agent to maintain such accounts or
any error therein shall not in any manner affect the obligation of the
Borrower to repay the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans made by it be evidenced by
a promissory note. In such event, the Borrower shall prepare, execute and
deliver to such Lender a promissory note payable to the order of such Lender
(or, if requested by such Lender, to such Lender and its registered assigns)
and in a form approved by the Administrative Agent. Thereafter, the Loans
evidenced by such promissory note and interest thereon shall at all times
(including after assignment pursuant to Section 10.04) be represented by one
or more promissory notes in such form payable to the order of the payee named
therein (or, if such promissory note is a registered note, to such payee and
its registered assigns).
SECTION 2.10. Prepayment of Loans.
(a) The Borrower shall have the right at any time and from time
to time to prepay any Borrowing in whole or in part, subject to the
requirements of this Section, except that Fixed Rate Swingline Loans may not
be prepaid during their respective Fixed Rate Swingline Periods.
(b) Prior to any prepayment of Borrowings hereunder, the Borrower
shall select the Borrowing or Borrowings to be prepaid and shall specify such
selection in the notice of such prepayment pursuant to paragraph (c) of this
Section; provided that each prepayment of Borrowings shall be applied to
prepay any outstanding ABR Borrowings before any other Borrowings. If the
Borrower fails to make a timely selection of the Borrowing or Borrowings to be
prepaid, such prepayment shall be applied, first, to prepay any outstanding
ABR Borrowings and, second, to other Borrowings in the order of the remaining
duration of their respective Interest Periods (the Borrowing with the shortest
remaining Interest Period to be prepaid first).
(c) The Borrower shall notify the Administrative Agent (and, in
the case of prepayment of a Swingline Loan, the Swingline Lender) by telephone
(confirmed by telecopy) of any prepayment hereunder (i) in the case of
prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York City
time, three Business Days before the date of repayment, (ii) in the case of
prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City time,
one Business Day before the date of prepayment or (iii) in the case of
prepayment of a Swingline Loan, not later than 12:00 noon, New York City time,
on the date of prepayment. Each such notice shall be irrevocable and shall
specify the prepayment date and the principal amount of each Borrowing or
portion thereof to be prepaid; provided that, if a notice of prepayment is
given in connection with a conditional notice of termination of the
<PAGE>
Commitments as contemplated by Section 2.08, then such notice of prepayment
may be revoked if such notice of termination is revoked in accordance with
Section 2.08. Promptly following receipt of any such notice relating to a
Revolving Loan Borrowing, the Administrative Agent shall advise the Lenders of
the contents thereof. Each partial prepayment of any Borrowing shall be in an
amount that is $5,000,000 or increments of $1,000,000 in excess thereof (in
the case of Revolving Loan Borrowings) or $1,000,000 or increments of
$1,000,000 in excess thereof (in the case of Swingline Loans). Each
prepayment of a Revolving Loan Borrowing shall be applied ratably to the Loans
included in the prepaid Borrowing. Prepayments shall be accompanied by
accrued interest to the extent required by Section 2.12.
SECTION 2.11. Fees.
(a) The Borrower shall pay to the Administrative Agent for
account of each Lender a commitment fee on the daily average unutilized amount
of such Lender's Commitment (for which purpose (i) the aggregate amount of any
LC Exposure shall be deemed to be a pro rata (based on the Commitments)
utilization of each Lender's Commitment and (ii) the aggregate principal
amount of any Swingline Loans shall be deemed to be a utilization of the
Swingline Lender's Commitment), for the period from and including the date
hereof to but not including the earlier of the date such Commitment is
terminated and the Maturity Date, at a rate per annum equal to the Applicable
Rate. Accrued commitment fee shall be payable on each Quarterly Date and on
the earlier of the date the Commitments are terminated and the Maturity Date.
(b) The Borrower agrees to pay (i) to the Administrative Agent
for the account of each Lender a participation fee with respect to its
participations in Letters of Credit, which shall accrue at a rate per annum
equal to the Applicable Rate applicable to interest on Eurodollar Loans on the
average daily amount of such Lender's LC Exposure (excluding any portion
thereof attributable to unreimbursed LC Disbursements) during the period from
and including the Effective Date to but excluding the later of the date on
which such Lender's Commitment terminates and the date on which such Lender
ceases to have any LC Exposure, and (ii) to the each Issuing Bank a fronting
fee, which shall accrue at the rate of 0.10% per annum on the average daily
amount of the LC Exposure (excluding any portion thereof attributable to
unreimbursed LC Disbursements) relating to Letters of Credit issued by such
Issuing Bank during the period from and including the Effective Date to but
excluding the later of the date of termination of the Commitments and the date
on which there ceases to be any LC Exposure, as well as such Issuing Bank's
standard fees with respect to the issuance, amendment, renewal or extension of
any Letter of Credit or processing of drawings thereunder. Participation fees
and fronting fees accrued through and including each Quarterly Date shall be
payable on the third Business Day following such Quarterly Date, commencing on
the first such date to occur after the Effective Date; provided that all such
fees shall be payable on the date on which the Commitments terminate and any
such fees accruing after the date on which the Commitments terminate shall be
payable on demand. Any other fees payable to the Issuing Banks pursuant to
this paragraph shall be payable within 10 days after demand. All
participation fees and fronting fees shall be computed on the basis of a year
of 360 days and shall be payable for the actual number of days elapsed
(including the first day but excluding the last day for the period of
calculation).
<PAGE>
(c) The Borrower agrees to pay to the Administrative Agent, for
its own account, fees payable in the amounts and at the times separately
agreed upon between the Borrower and the Administrative Agent.
(d) All fees payable hereunder shall be paid on the dates due, in
immediately available funds, to the Administrative Agent (or to the respective
Issuing Banks, in the case of fees payable to them) for distribution, in the
case of facility fees and participation fees, to the Lenders entitled thereto.
Fees paid shall not be refundable under any circumstances.
SECTION 2.12. Interest.
(a) The Loans comprising each ABR Borrowing (including each
Swingline Loan (other than Fixed Rate Swingline Loans during their respective
Fixed Rate Swingline Periods) shall bear interest at a rate per annum equal to
the Alternate Base Rate plus the Applicable Rate.
(b) The Loans comprising each Eurodollar Borrowing shall bear
interest at a rate per annum equal to the Adjusted LIBO Rate for the Interest
Period in effect for such Borrowing plus the Applicable Rate.
(c) Each Fixed Rate Swingline Loan shall bear interest during the
Fixed Rate Swingline Period therefor at the rate per annum agreed to between
the Borrower and the Swingline Lender for such Fixed Rate Swingline Period.
(d) Notwithstanding the foregoing, if any principal of or
interest on any Loan or any fee or other amount payable by the Borrower
hereunder is not paid when due, whether at stated maturity, upon acceleration
or otherwise, such overdue amount shall bear interest, after as well as before
judgment, at a rate per annum equal to (i) in the case of overdue principal of
any Loan, 2% plus the rate otherwise applicable to such Loan as provided above
or (ii) in the case of any other amount, 2% plus the rate applicable to ABR
Loans as provided in paragraph (a) of this Section.
(e) Accrued interest on each Loan shall be payable in arrears on
each Interest Payment Date for such Loan and, in the case of Revolving Loans,
upon termination of the Commitments; provided that (i) interest accrued
pursuant to paragraph (d) of this Section shall be payable on demand, (ii) in
the event of any repayment or prepayment of any Loan (other than a prepayment
of an ABR Revolving Loan prior to the Maturity Date), accrued interest on the
principal amount repaid or prepaid shall be payable on the date of such
repayment or prepayment and (iii) in the event of any conversion of any
Eurodollar Revolving Loan Borrowing prior to the end of the current Interest
Period therefor, accrued interest on such Loan shall be payable on the
effective date of such conversion.
(f) All interest hereunder shall be computed on the basis of a
year of 360 days, except that interest computed by reference to the Alternate
Base Rate at times when the Alternate Base Rate is based on the Prime Rate
shall be computed on the basis of a year of 365 days (or 366 days in a leap
year), and in each case shall be payable for the actual number of days elapsed
(including the first day but excluding the last day). The applicable
Alternate Base Rate or Adjusted LIBO Rate shall be determined by the
Administrative Agent, and such determination shall be conclusive absent
manifest error.
<PAGE>
SECTION 2.13. Alternate Rate of Interest. If prior to the
commencement of any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination
shall be conclusive absent manifest error) that adequate and reasonable
means do not exist for ascertaining the Adjusted LIBO Rate for such
Interest Period; or
(b) the Administrative Agent is advised by the Required Lenders
that the Adjusted LIBO Rate for such Interest Period will not adequately
and fairly reflect the cost to such Lenders of making or maintaining
their Loans included in such Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and
the Lenders by telephone or telecopy as promptly as practicable thereafter
and, until the Administrative Agent notifies the Borrower and the Lenders that
the circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Revolving Loan Borrowing
to, or continuation of any Revolving Loan Borrowing as, a Eurodollar Borrowing
shall be ineffective and (ii) if any Borrowing Request requests a Eurodollar
Borrowing, such Borrowing shall be made as an ABR Borrowing; provided that if
the circumstances giving rise to such notice affect only one Type of
Borrowings, then the other Type of Borrowings shall be permitted.
SECTION 2.14. Increased Costs.
(a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special
deposit or similar requirement against assets of, deposits with or for
the account of, or credit extended by, any Lender (except any such
reserve requirement reflected in the Adjusted LIBO Rate) or any Issuing
Bank; or
(ii) impose on any Lender or any Issuing Bank or the London
interbank market any other condition affecting this Agreement or
Eurodollar Loans made by such Lender or any Letter of Credit or
participation therein;
and the result of any of the foregoing shall be to increase the cost to such
Lenders of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to increase the cost to such Lender or
such Issuing Bank of participating in, issuing or maintaining any Letter of
Credit or to reduce the amount of any sum received or receivable by such
Lender or such Issuing Bank hereunder (whether of principal, interest or
otherwise), then the Borrower will pay to such Lender or such Issuing Bank, as
the case may be, such additional amount or amounts as will compensate such
Lender or such Issuing Bank, as the case may be, for such additional costs
incurred or reduction suffered.
(b) If any Lender or any Issuing Bank determines that any Change
in Law regarding capital requirements has or would have the effect of reducing
the rate of return on such Lender's or such Issuing Bank's capital or on the
capital of such Lender's or such Issuing Bank's holding company, if any, as a
consequence of this Agreement or the Loans made by, or participations in
Letters of Credit held by, such Lender, or the Letters of Credit issued by
<PAGE>
such Issuing Bank, to a level below that which such Lender or such Issuing
Bank or such Lender's or such Issuing Bank's holding company could have
achieved but for such Change in Law (taking into consideration such Lender's
or such Issuing Bank's policies and the policies of such Lender's or such
Issuing Bank's holding company with respect to capital adequacy), then from
time to time the Borrower will pay to such Lender or such Issuing Bank, as the
case may be, such additional amount or amounts as will compensate such Lender
or such Issuing Bank or such Lender's or such Issuing Bank's holding company
for any such reduction suffered.
(c) A certificate of a Lender or an Issuing Bank setting forth
the amount or amounts necessary to compensate such Lender or such Issuing Bank
or its holding company, as the case may be, as specified in paragraph (a)
or (b) of this Section shall be delivered to the Borrower and shall be
conclusive absent manifest error. The Borrower shall pay such Lender or such
Issuing Bank, as the case may be, the amount shown as due on any such
certificate within 10 days after receipt thereof.
(d) Failure or delay on the part of any Lender or any Issuing
Bank to demand compensation pursuant to this Section shall not constitute a
waiver of such Lender's or such Issuing Bank's right to demand such
compensation; provided that the Borrower shall not be required to compensate a
Lender or an Issuing Bank pursuant to this Section for any increased costs or
reductions incurred more than six months prior to the date that such Lender or
such Issuing Bank, as the case may be, notifies the Borrower of the Change in
Law giving rise to such increased costs or reductions and of such Lender's or
such Issuing Bank's intention to claim compensation therefor; provided further
that, if the Change in Law giving rise to such increased costs or reductions
is retroactive, then the six-month period referred to above shall be extended
to include the period of retroactive effect thereof.
SECTION 2.15. Break Funding Payments. In the event of (a) the
payment of any principal of any Eurodollar Loan or Fixed Rate Swingline Loan
other than on the last day of an Interest Period or the Fixed Rate Swingline
Period (as the case may be) applicable thereto (including as a result of an
Event of Default), (b) the conversion of any Eurodollar Loan other than on the
last day of the Interest Period applicable thereto, (c) the failure to borrow,
convert, continue or prepay any Revolving Loan on the date specified in any
notice delivered pursuant hereto (regardless of whether such notice is
permitted to be revocable under Section 2.10(b) and is revoked in accordance
herewith), (d) the failure to borrow any Fixed Rate Swingline Loan on the date
specified in any notice delivered pursuant hereto (regardless of whether such
notice is permitted to be revocable under Section 2.10(b) and is revoked in
accordance herewith) or (e) the assignment of any Eurodollar Loan or Fixed
Rate Swingline Loan other than on the last day of the Interest Period or Fixed
Rate Swingline Period (as the case may be) applicable thereto as a result of a
request by the Borrower pursuant to Section 2.18, then, in any such event, the
Borrower shall compensate each Lender for the loss, cost and expense
attributable to such event. In the case of a Eurodollar Loan, the loss to any
Lender attributable to any such event shall be deemed to include an amount
determined by such Lender to be equal to the excess, if any, of (i) the amount
of interest that such Lender would pay for a deposit equal to the principal
amount of such Loan for the period from the date of such payment, conversion,
failure or assignment to the last day of the then current Interest Period for
such Loan (or, in the case of a failure to borrow, convert or continue, the
duration of the Interest Period that would have resulted from such borrowing,
<PAGE>
conversion or continuation) if the interest rate payable on such deposit were
equal to the Adjusted LIBO Rate for such Interest Period, over (ii) the amount
of interest that such Lender would earn on such principal amount for such
period if such Lender were to invest such principal amount for such period at
the interest rate that would be bid by such Lender (or an affiliate of such
Lender) for dollar deposits from other banks in the eurodollar market at the
commencement of such period. In the case of a Fixed Rate Swingline Loan, the
loss to the Swingline Lender attributable to any such event shall be deemed to
include an amount determined by the Swingline Lender to be equal to the
excess, if any, of (a) the aggregate amount of interest which otherwise would
have accrued hereunder on the principal amount so paid (or not borrowed) for
the period from and including the date of payment (or failure to borrow) to
but excluding the last day of the Fixed Rate Swingline Period for such Fixed
Rate Swingline Loan (or, in the case of a failure to borrow, the duration of
the Fixed Rate Swingline Period that would have resulted from such borrowing)
over (b) the amount of interest the Swingline Lender would pay (as determined
by the Swingline Lender in good faith, such determination to be conclusive) on
a deposit placed with the Swingline Lender on the date of such payment (or
failure to borrow) in an amount comparable to such principal amount and with a
maturity comparable to such period (or, in the case of a failure to borrow the
duration of the Fixed Rate Swingline Period that would have resulted from such
borrowing). A certificate of any Lender setting forth any amount or amounts
that such Lender is entitled to receive pursuant to this Section shall be
delivered to the Borrower and shall be conclusive absent manifest error. The
Borrower shall pay such Lender the amount shown as due on any such certificate
within 10 days after receipt thereof.
SECTION 2.16. Taxes.
(a) Any and all payments by or an account of any obligation of
the Borrower hereunder or under any other Loan Document shall be made free and
clear of and without deduction for any Indemnified Taxes or Other Taxes;
provided that if the Borrower shall be required to deduct any Indemnified
Taxes or Other Taxes from such payments, then (i) the sum payable shall be
increased as necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section) the
Administrative Agent, Lender or Issuing Bank (as the case may be) receives an
amount equal to the sum it would have received had no such deductions been
made, (ii) the Borrower shall make such deductions and (iii) the Borrower
shall pay the full amount deducted to the relevant Governmental Authority in
accordance with Applicable Law.
(b) In addition, the Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with Applicable Law.
(c) The Borrower shall indemnify the Administrative Agent, each
Lender and each Issuing Bank, within 10 days after written demand therefor,
for the full amount of any Indemnified Taxes or Other Taxes (including
Indemnified Taxes or Other Taxes imposed or asserted on or attributable to
amounts payable under this Section) paid by the Administrative Agent, such
Lender or such Issuing Bank, as the case may be, and any penalties, interest
and reasonable expenses arising therefrom or with respect thereto, whether or
not such Indemnified Taxes or Other Taxes were correctly or legally imposed or
asserted by the relevant Governmental Authority. A certificate as to the
amount of such payment or Liability delivered to the Borrower by a Lender or
<PAGE>
an Issuing Bank, or by the Administrative Agent on its own behalf or on behalf
of a Lender or an Issuing Bank, shall be conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified Taxes
or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall
deliver to the Administrative Agent the original or a certified copy of a
receipt issued by such Governmental Authority evidencing such payment, a copy
of the return reporting such payment or other evidence of such payment
reasonably satisfactory to the Administrative Agent.
(e) Any Foreign Lender that is entitled to an exemption from or
reduction of withholding tax under the law of the jurisdiction in which the
Borrower is located, or any treaty to which such jurisdiction is a party, with
respect to payments under this Agreement shall deliver to the Borrower (with a
copy to the Administrative Agent), at the time or times prescribed by
Applicable Law or reasonably requested by the Borrower, such properly
completed and executed documentation prescribed by Applicable Law as will
permit such payments to be made without withholding or at a reduced rate.
SECTION 2.17. Payments Generally; Pro Rata Treatment; Sharing of
Set-offs.
(a) Each Obligor shall make each payment required to be made by
it hereunder (whether of principal, interest, fees or reimbursement of LC
Disbursements, or under Section 2.14, 2.15 or 2.16, or otherwise) or under any
other Loan Document (except to the extent otherwise provided therein) prior to
12:00 noon, New York City time, on the date when due, in immediately available
funds, without set-off or counterclaim. Any amounts received after such time
on any date may, in the discretion of the Administrative Agent, be deemed to
have been received on the next succeeding Business Day for purposes of
calculating interest thereon. All such payments shall be made to the
Administrative Agent at its offices at 270 Park Avenue, New York, New York,
except as otherwise expressly provided in the relevant Loan Document, and
except payments to be made directly to an Issuing Bank or the Swingline Lender
as expressly provided herein and except that payments pursuant to
Sections 2.14, 2.15, 2.16 and 10.03 shall be made directly to the Persons
entitled thereto. The Administrative Agent shall distribute any such payments
received by it for the account of any other Person to the appropriate
recipient promptly following receipt thereof. If any payment hereunder shall
be due on a day that is not a Business Day, the date for payment shall be
extended to the next succeeding Business Day and, in the case of any payment
accruing interest, interest thereon shall be payable for the period of such
extension. All payments hereunder or under any other Loan Document (except to
the extent otherwise provided therein) shall be made in dollars.
(b) If at any time insufficient funds are received by and
available to the Administrative Agent to pay fully all amounts of principal,
unreimbursed LC Disbursements, interest and fees then due hereunder, such
funds shall be applied (i) first, to pay interest and fees then due hereunder,
ratably among the parties entitled thereto in accordance with the amounts of
interest and fees then due to such parties, and (ii) second, to pay principal
and unreimbursed LC Disbursements then due hereunder, ratably among the
parties entitled thereto in accordance with the amounts of principal and
unreimbursed LC Disbursements then due to such parties.
<PAGE>
(c) If any Lender shall, by exercising any right of set-off or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Revolving Loans or participations in LC Disbursements
or Swingline Loans resulting in such Lender receiving payment of a greater
proportion of the aggregate amount of its Revolving Loans and participations
in LC Disbursements and Swingline Loans and accrued interest thereon than the
proportion received by any other Lender, then the Lender receiving such
greater proportion shall purchase (for cash at face value) participations in
the Revolving Loans and participations in LC Disbursements and Swingline Loans
of other Lenders to the extent necessary so that the benefit of all such
payments shall be shared by the Lenders ratably in accordance with the
aggregate amount of principal of and accrued interest on their respective
Revolving Loans and participations in LC Disbursements and Swingline Loans;
provided that (i) if any such participations are purchased and all or any
portion of the payment giving rise thereto is recovered, such participations
shall be rescinded and the purchase price restored to the extent of such
recovery, without interest, and (ii) the provisions of this paragraph shall
not be construed to apply to any payment made by any Obligor pursuant to and
in accordance with the express terms of this Agreement or any payment obtained
by a Lender as consideration for the assignment of or sale of a participation
in any of its Loans or participations in LC Disbursements to any assignee or
participant, other than to the Borrower or any Subsidiary or Affiliate thereof
(as to which the provisions of this paragraph shall apply). Each Obligor
consents to the foregoing and agrees, to the extent it may effectively do so
under Applicable Law, that any Lender acquiring a participation pursuant to
the foregoing arrangements may exercise against such Obligor rights of set-off
and counterclaim with respect to such participation as fully as if such Lender
were a direct creditor of such Obligor in the amount of such participation.
(d) Unless the Administrative Agent shall have received notice
from the Borrower prior to the date on which any payment is due to the
Administrative Agent for the account of the Lenders or the Issuing Banks
hereunder that the Borrower will not make such payment, the Administrative
Agent may assume that the Borrower has made such payment on such date in
accordance herewith and may, in reliance upon such assumption, distribute to
the Lenders or the Issuing Banks, as the case may be, the amount due. In such
event, if the Borrower has not in fact made such payment, then each of the
Lenders or each of the Issuing Banks, as the case may be, severally agrees to
repay to the Administrative Agent forthwith on demand the amount so
distributed to such Lender or such Issuing Bank with interest thereon, for
each day from and including the date such amount is distributed to it to but
excluding the date of payment to the Administrative Agent, at the Federal
Funds Effective Rate.
(e) If any Lender shall fail to make any payment required to be
made by it pursuant to Section 2.04(c), 2.05(e) or (f), 2.06(b) or 2.17(d),
then the Administrative Agent may, in its discretion (notwithstanding any
contrary provision hereof), apply any amounts thereafter received by the
Administrative Agent for the account of such Lender to satisfy such Lender's
obligations under such Sections until all such unsatisfied obligations are
fully paid.
SECTION 2.18. Mitigation Obligations; Replacement of Lenders.
(a) If any Lender requests compensation under Section 2.14, or if
the Borrower is required to pay any additional amount to any Lender or any
<PAGE>
Governmental Authority for the account of any Lender pursuant to Section 2.16,
then such Lender shall use reasonable efforts to designate a different lending
office for funding or booking its Loans hereunder or to assign its rights and
obligations hereunder to another of its offices, branches or affiliates, if,
in the judgment of such Lender, such designation or assignment (i) would
eliminate or reduce amounts payable pursuant to Section 2.14 or 2.16, as the
case may be, in the future and (ii) would not subject such Lender to any
unreimbursed cost or expense and would not otherwise be disadvantageous to
such Lender. The Borrower hereby agrees to pay all reasonable costs and
expenses incurred by any Lender in connection with any such designation or
assignment.
(b) If any Lender requests compensation under Section 2.14, or if
the Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.16,
or if any Lender defaults in its obligation to fund Loans hereunder, then the
Borrower may, at its sole expense and effort, upon notice to such Lender and
the Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 10.04), all its interests, rights and obligations under this Agreement
to an assignee that shall assume such obligations (which assignee may be
another Lender, if a Lender accepts such assignment); provided that (i) the
Borrower shall have received the prior written consent of the Administrative
Agent (and, if a Commitment is being assigned, the applicable Issuing Bank and
the Swingline Lender), which consent shall not unreasonably be withheld,
(ii) such Lender shall have received payment of an amount equal to the
outstanding principal of its Loans and participations in LC Disbursements and
Swingline Loans, accrued interest thereon, accrued fees and all other amounts
payable to it hereunder, from the assignee (to the extent of such outstanding
principal and accrued interest and fees) or the Borrower (in the case of all
other amounts) and (iii) in the case of any such assignment resulting from a
claim for compensation under Section 2.14 or payments required to be made
pursuant to Section 2.16, such assignment will result in a reduction in such
compensation or payments. A Lender shall not be required to make any such
assignment and delegation if, prior thereto, as a result of a waiver by such
Lender or otherwise, the circumstances entitling the Borrower to require such
assignment and delegation cease to apply.
SECTION 2.19. Extension of Maturity Date. The Borrower may, by
notice to the Administrative Agent (which shall promptly deliver a copy to the
Lenders) not less than 60 days and not more than 90 days prior to the date one
year before the Maturity Date then in effect hereunder (the "Existing Maturity
Date"), request that the Lenders extend the Maturity Date for an additional
year from the Existing Maturity Date. Each Lender, acting in its sole
discretion, shall, by notice to the Administrative Agent given not more than
45 and not less than 30 days prior to the date one year before the Existing
Maturity Date, advise the Administrative Agent whether or not such Lender
agrees to such extension, provided that no Lender may require a fee as a
condition to its agreement to such extensions. If (and only if) Lenders
holding 100% of the aggregate amount of the Commitments shall have so agreed
to extend the Existing Maturity Date, then, effective upon such agreement by
such Lenders, the Existing Maturity Date shall be automatically extended to
the date one year after the Existing Maturity Date, provided that in no event
shall the Maturity Date be extended beyond the sixth anniversary of the
Effective Date.
<PAGE>
ARTICLE III
GUARANTEE
SECTION 3.01. The Guarantee. The Subsidiary Guarantors hereby
jointly and severally guarantee to each Lender and the Administrative Agent
and their respective successors and assigns the prompt payment in full when
due (whether at stated maturity, by acceleration or otherwise) of the
principal of and interest on the Loans made by the Lenders to the Borrower and
all other amounts from time to time owing to the Lenders or the Administrative
Agent by the Borrower under this Agreement and by any Obligor under any of the
other Loan Documents, in each case strictly in accordance with the terms
thereof (such obligations being herein collectively called the "Guaranteed
Obligations"). The Subsidiary Guarantors hereby further jointly and severally
agree that if the Borrower shall fail to pay in full when due (whether at
stated maturity, by acceleration or otherwise) any of the Guaranteed
Obligations, the Subsidiary Guarantors will promptly pay the same, without any
demand or notice whatsoever, and that in the case of any extension of time of
payment or renewal of any of the Guaranteed Obligations, the same will be
promptly paid in full when due (whether at extended maturity, by acceleration
or otherwise) in accordance with the terms of such extension or renewal.
SECTION 3.02. Obligations Unconditional. The obligations of the
Subsidiary Guarantors under Section 3.01 are absolute and unconditional, joint
and several, irrespective of the value, genuineness, validity, regularity or
enforceability of the obligations of the Borrower under this Agreement or any
other agreement or instrument referred to herein or therein, or any
substitution, release or exchange of any other guarantee of or security for
any of the Guaranteed Obligations, and, to the fullest extent permitted by
Applicable Law, irrespective of any other circumstance whatsoever that might
otherwise constitute a legal or equitable discharge or defense of a surety or
guarantor, it being the intent of this Section that the obligations of the
Subsidiary Guarantors hereunder shall be absolute and unconditional, joint and
several, under any and all circumstances. Without limiting the generality of
the foregoing, it is agreed that the occurrence of any one or more of the
following shall not alter or impair the Liability of the Subsidiary Guarantors
hereunder, which shall remain absolute and unconditional as described above:
(i) at any time or from time to time, without notice to the
Subsidiary Guarantors, the time for any performance of or compliance
with any of the Guaranteed Obligations shall be extended, or such
performance or compliance shall be waived;
(ii) any of the acts mentioned in any of the provisions of
this Agreement or any other agreement or instrument referred to herein
shall be done or omitted;
(iii) the maturity of any of the Guaranteed Obligations shall
be accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or any right under this
Agreement or any other agreement or instrument referred to herein shall
be waived or any other guarantee of any of the Guaranteed Obligations or
any security therefor shall be released or exchanged in whole or in part
or otherwise dealt with; or
<PAGE>
(iv) any lien or security interest granted to, or in favor of,
the Administrative Agent or any Lender or Lenders as security for any of
the Guaranteed Obligations shall fail to be perfected.
The Subsidiary Guarantors hereby expressly waive diligence, presentment,
demand of payment, protest and all notices whatsoever, and any requirement
that the Administrative Agent or any Lender exhaust any right, power or remedy
or proceed against the Borrower under this Agreement or any other agreement or
instrument referred to herein, or against any other Person under any other
guarantee of, or security for, any of the Guaranteed Obligations.
SECTION 3.03. Reinstatement. The obligations of the Subsidiary
Guarantors under this Article shall be automatically reinstated if and to the
extent that for any reason any payment by or on behalf of the Borrower in
respect of the Guaranteed Obligations is rescinded or must be otherwise
restored by any holder of any of the Guaranteed Obligations, whether as a
result of any proceedings in bankruptcy or reorganization or otherwise, and
the Subsidiary Guarantors jointly and severally agree that they will indemnify
the Administrative Agent and each Lender on demand for all reasonable costs
and expenses (including, without limitation, fees of counsel) incurred by the
Administrative Agent or such Lender in connection with such rescission or
restoration, including any such costs and expenses incurred in defending
against any claim alleging that such payment constituted a preference,
fraudulent transfer or similar payment under any bankruptcy, insolvency or
similar law.
SECTION 3.04. Subrogation. The Subsidiaries Guarantors hereby
jointly and severally agree that until the payment and satisfaction in full of
all Guaranteed Obligations and the expiration and termination of the
Commitments of the Lenders under this Agreement they shall not exercise any
right or remedy arising by reason of any performance by them of their
guarantee in Section 3.01, whether by subrogation or otherwise, against the
Borrower or any other guarantor of any of the Guaranteed Obligations or any
security for any of the Guaranteed Obligations.
SECTION 3.05. Remedies. The Subsidiary Guarantors jointly and
severally agree that, as between the Subsidiary Guarantors and the Lenders,
the obligations of the Borrower under this Agreement may be declared to be
forthwith due and payable as provided in Article VIII (and shall be deemed to
have become automatically due and payable in the circumstances provided in
Article VIII) for purposes of Section 3.01 notwithstanding any stay,
injunction or other prohibition preventing such declaration (or such
obligations from becoming automatically due and payable) as against the
Borrower and that, in the event of such declaration (or such obligations being
deemed to have become automatically due and payable), such obligations
(whether or not due and payable by the Borrower) shall forthwith become due
and payable by the Subsidiary Guarantors for purposes of Section 3.01.
SECTION 3.06. Instrument for the Payment of Money. Each
Subsidiary Guarantor hereby acknowledges that the guarantee in this Article
constitutes an instrument for the payment of money, and consents and agrees
that any Lender or the Administrative Agent, at its sole option, in the event
of a dispute by such Subsidiary Guarantor in the payment of any moneys due
hereunder, shall have the right to bring motion-action under New York CPLR
Section 3213.
<PAGE>
SECTION 3.07. Continuing Guarantee. The guarantee in this
Article is a continuing guarantee, and shall apply to all Guaranteed
Obligations whenever arising.
SECTION 3.08. Rights of Contribution. The Subsidiary Guarantors
hereby agree, as between themselves, that if any Subsidiary Guarantor shall
become an Excess Funding Guarantor (as defined below) by reason of the payment
by such Subsidiary Guarantor of any Guaranteed Obligations, each other
Subsidiary Guarantor shall, on demand of such Excess Funding Guarantor (but
subject to the next sentence), pay to such Excess Funding Guarantor an amount
equal to such Subsidiary Guarantor's Pro Rata Share (as defined below and
determined, for this purpose, without reference to the Properties, debts and
liabilities of such Excess Funding Guarantor) of the Excess Payment (as
defined below) in respect of such Guaranteed Obligations. The payment
obligation of a Subsidiary Guarantor to any Excess Funding Guarantor under
this Section shall be subordinate and subject in right of payment to the prior
payment in full of the obligations of such Subsidiary Guarantor under the
other provisions of this Article and such Excess Funding Guarantor shall not
exercise any right or remedy with respect to such excess until payment and
satisfaction in full of all of such obligations.
For purposes of this Section, (i) "Excess Funding Guarantor" shall
mean, in respect of any Guaranteed Obligations, a Subsidiary Guarantor that
has paid an amount in excess of its Pro Rata Share of such Guaranteed
Obligations, (ii) "Excess Payment" shall mean, in respect of any Guaranteed
Obligations, the amount paid by an Excess Funding Guarantor in excess of its
Pro Rata Share of such Guaranteed Obligations and (iii) "Pro Rata Share" shall
mean, for any Subsidiary Guarantor, the ratio (expressed as a percentage) of
(x) the amount by which the aggregate present fair saleable value of all
Properties of such Subsidiary Guarantor (excluding any shares of stock of any
other Subsidiary Guarantor) exceeds the amount of all the debts and
liabilities of such Subsidiary Guarantor (including contingent, subordinated,
unmatured and unliquidated liabilities, but excluding the obligations of such
Subsidiary Guarantor hereunder and any obligations of any other Subsidiary
Guarantor that have been Guaranteed by such Subsidiary Guarantor) to (y) the
amount by which the aggregate fair saleable value of all Properties of all of
the Subsidiary Guarantors exceeds the amount of all the debts and liabilities
(including contingent, subordinated, unmatured and unliquidated liabilities,
but excluding the obligations of the Borrower and the Subsidiary Guarantors
hereunder and under the other Loan Documents) of all of the Subsidiary
Guarantors, determined (A) with respect to any Subsidiary Guarantor that is a
party hereto on the Effective Date, as of the Effective Date, and (B) with
respect to any other Subsidiary Guarantor, as of the date such Subsidiary
Guarantor becomes a Subsidiary Guarantor hereunder.
SECTION 3.09. General Limitation on Guarantee Obligations. In
any action or proceeding involving any state corporate law, or any state or
Federal bankruptcy, insolvency, reorganization or other law affecting the
rights of creditors generally, if the obligations of any Subsidiary Guarantor
under Section 3.01 would otherwise, taking into account the provisions of
Section 3.08, be held or determined to be void, invalid or unenforceable, or
subordinated to the claims of any other creditors, on account of the amount of
its Liability under Section 3.01, then, notwithstanding any other provision
hereof to the contrary, the amount of such Liability shall, without any
further action by such Subsidiary Guarantor, any Lender, the Administrative
Agent or any other Person, be automatically limited and reduced to the highest
<PAGE>
amount that is valid and enforceable and not subordinated to the claims of
other creditors as determined in such action or proceeding.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lenders that:
SECTION 4.01. Organization; Powers. Each of the Borrower and its
Material Subsidiaries is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization, has all requisite
power and authority to carry on its business as now conducted and, except
where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect, is qualified to
do business in, and is in good standing in, every jurisdiction where such
qualification is required.
SECTION 4.02. Authorization; Enforceability. The Transactions
are within each Obligor's corporate powers and have been duly authorized by
all necessary corporate and, if required, stockholder action. This Agreement
has been duly executed and delivered by each Obligor and constitutes, and each
of the other Loan Documents to which it is a party when executed and delivered
by such Obligor will constitute, a legal, valid and binding obligation of such
Obligor, enforceable against each Obligor in accordance with its terms, except
as such enforceability may be limited by (a) bankruptcy, insolvency,
reorganization, moratorium or similar laws of general applicability affecting
the enforcement of creditors' rights and (b) the application of general
principles of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
SECTION 4.03. Governmental Approvals; No Conflicts. The
consummation of the Transactions on the part of the Obligors (a) do not
require any Governmental Approval, or any other action by, any Governmental
Authority, except such as have been obtained or made and are in full force and
effect, (b) will not violate any Applicable Law or regulation or the charter,
by-laws or other organizational documents of the Borrower or any of its
Subsidiaries or any order of any Governmental Authority, (c) will not violate
or result in a default under any indenture, agreement or other instrument
binding upon the Borrower or any of its Subsidiaries or assets, or give rise
to a right thereunder to require any payment to be made by any such Person,
and (d) will not result in the creation or imposition of any Lien on any asset
of the Borrower or any of its Subsidiaries.
SECTION 4.04. Financial Condition; No Material Adverse Change.
(a) The Borrower has heretofore furnished to the Lenders its
consolidated balance sheet and statements of income, stockholders equity and
cash flows (i) as of and for the fiscal year ended December 31, 1996, reported
on by Arthur Andersen LLP, independent public accountants, and (ii) as of and
for the fiscal quarter and the portion of the fiscal year ended June 30, 1997,
certified by its chief financial officer. Such financial statements present
fairly, in all material respects, the financial position and results of
operations and cash flows of the Borrower and its Subsidiaries as of such
dates and for such periods in accordance with GAAP, subject to year-end audit
<PAGE>
adjustments and the absence of footnotes in the case of the statements
referred to in clause (ii) of the first sentence of this paragraph.
(b) Since December 31, 1996, there has been no material adverse
change in the business, assets, operations, prospects or financial condition
of the Borrower and its Material Subsidiaries, taken as a whole.
SECTION 4.05. Properties.
(a) Each of the Borrower and its Material Subsidiaries has good
title to, or valid leasehold interests in, all its real and personal property
material to its business, subject only to Liens permitted by Section 7.02 and
except for minor defects in title that do not interfere with its ability to
conduct its business as currently conducted or to utilize such properties for
their intended purposes.
(b) Each of the Borrower and its Material Subsidiaries owns, or
is licensed to use, all trademarks, tradenames, copyrights, patents and other
intellectual property material to its business, and the use thereof by the
Borrower and its Material Subsidiaries does not infringe upon the rights of
any other Person, except for any such infringements that, individually or in
the aggregate, could not reasonably be expected to result in a Material
Adverse Effect.
SECTION 4.06. Litigation and Environmental Matters.
(a) There are no actions, suits or proceedings by or before any
arbitrator or Governmental Authority now pending against or, to the knowledge
of the Borrower, threatened against or affecting the Borrower or any of its
Subsidiaries (i) as to which there is a reasonable possibility of an adverse
determination and that, if adversely determined, could reasonably be expected,
individually or in the aggregate, to result in a Material Adverse Effect
(other than the Disclosed Matters) or (ii) that involve this Agreement or the
Transactions.
(b) Except for the Disclosed Matters and except with respect to
any other matters that, individually or in the aggregate, could not reasonably
be expected to result in a Material Adverse Effect, neither the Borrower nor
any of its Subsidiaries (i) has failed to comply with any Environmental Law or
to obtain, maintain or comply with any permit, license or other approval
required under any Environmental Law, (ii) has become subject to any
Environmental Liability, (iii) has received notice of any claim with respect
to any Environmental Liability or (iv) knows of any basis for any
Environmental Liability.
(c) Since the date of this Agreement, there has been no change in
the status of the Disclosed Matters that, individually or in the aggregate,
has resulted in, or materially increased the likelihood of, a Material Adverse
Effect.
SECTION 4.07. Compliance with Laws and Agreements. Each of the
Borrower and its Subsidiaries is in compliance with all laws, regulations and
orders of any Governmental Authority applicable to it or its property and all
indentures, agreements and other instruments binding upon it or its property,
except where the failure to do so, individually or in the aggregate, could not
<PAGE>
reasonably be expected to result in a Material Adverse Effect. No Default has
occurred and is continuing.
SECTION 4.08. Investment and Holding Company Status. Neither the
Borrower nor any of its Subsidiaries is (a) an "investment company" as defined
in, or subject to regulation under, the Investment Company Act of 1940 or
(b) a "holding company" as defined in, or subject to regulation under, the
Public Utility Holding Company Act of 1935.
SECTION 4.09. Taxes. Each of the Borrower and its Subsidiaries
has timely filed or caused to be filed all Tax returns and reports required to
have been filed and has paid or caused to be paid all Taxes required to have
been paid by it, except (a) Taxes that are being contested in good faith by
appropriate proceedings and for which such Person has set aside on its books
adequate reserves or (b) to the extent that the failure to do so could not
reasonably be expected to result in a Material Adverse Effect.
SECTION 4.10. ERISA. No ERISA Event has occurred or is
reasonably expected to occur that, when taken together with all other such
ERISA Events for which Liability is reasonably expected to occur, could
reasonably be expected to result in a Material Adverse Effect. The present
value of all accumulated benefit obligations under each Plan (based on the
assumptions used for purposes of Statement of Financial Accounting Standards
No. 87) did not, as of the date of the most recent financial statements
reflecting such amounts, exceed the fair market value of the assets of such
Plan, and the present value of all accumulated benefit obligations of all
underfunded Plans (based on the assumptions used for purposes of Statement of
Financial Accounting Standards No. 87) did not, as of the date of the most
recent financial statements reflecting such amounts, exceed by more than
$10,000,000 the fair market value of the assets of all such underfunded Plans.
SECTION 4.11. Disclosure. The Borrower has disclosed to the
Lenders all agreements, instruments and corporate or other restrictions to
which it or any of its Subsidiaries is subject, and all other matters known to
it, including any law, regulation or order of any Governmental Authority,
that, individually or in the aggregate, could reasonably be expected to result
in a Material Adverse Effect. None of the reports, financial statements,
certificates or other information furnished by or on behalf of the Obligors to
the Lender in connection with the negotiation of this Agreement and the other
Loan Documents or delivered hereunder or thereunder (as modified or
supplemented by other information so furnished) contains any material
misstatement of fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided that, with respect to projected financial
information, the Borrower represents only that such information was prepared
in good faith based upon assumptions believed to be reasonable at the time, it
being recognized by the Lenders that such projections as to future events are
not to be viewed as facts and that actual results during the periods covered
thereby may differ from the projected results.
SECTION 4.12. Use of Credit. Neither the Borrower nor any of its
Subsidiaries is engaged principally, or as one of its important activities, in
the business of extending credit for the purpose, whether immediate,
incidental or ultimate, of buying or carrying Margin Stock, and no part of the
proceeds of any extension of credit hereunder will be used to buy or carry any
Margin Stock.
<PAGE>
SECTION 4.13. Material Agreements and Liens.
(a) Part A of Schedule II is a complete and correct list of each
credit agreement, loan agreement, indenture, note purchase agreement,
guarantee, letter of credit or other arrangement providing for or otherwise
relating to any Indebtedness or any extension of credit (or commitment for any
extension of credit) to, or guarantee by, the Borrower or any of its
Subsidiaries outstanding on the date hereof the aggregate principal or face
amount of which equals or exceeds (or may equal or exceed) $5,000,000, and (i)
the aggregate principal or face amount outstanding or that may become
outstanding under each such arrangement and (ii) the corresponding name of the
Borrower or the Subsidiary of the Borrower, as applicable, in respect of such
arrangement are correctly described in Part A of Schedule II.
(b) Part B of Schedule II is a complete and correct list of each
Lien securing Indebtedness of any Person outstanding on the date hereof the
aggregate principal or face amount of which equals or exceeds (or may equal or
exceed) $1,000,000 and covering any property of the Borrower or any of its
Subsidiaries, and the aggregate Indebtedness secured (or that may be secured)
by each such Lien and the property covered by each such Lien is correctly
described in Part B of Schedule II.
SECTION 4.14. Material Subsidiaries, Etc.
(a) Set forth in Schedule IV is a complete and correct list of
all of the Material Subsidiaries of the Borrower as of the date hereof,
together with, for each such Material Subsidiary, (i) the jurisdiction of
organization of such Material Subsidiary, (ii) each Person holding ownership
interests in such Material Subsidiary and (iii) the nature of the ownership
interests held by each such Person and the percentage of ownership of such
Material Subsidiary represented by such ownership interests. Except as
disclosed in Schedule IV, (x) each of the Borrower and its Material
Subsidiaries owns, free and clear of Liens, and has the unencumbered right to
vote, all outstanding ownership interests in each Person shown to be held by
it in Schedule IV, (y) all of the issued and outstanding capital stock of each
such Person organized as a corporation is validly issued, fully paid and
nonassessable and (z) there are no outstanding Equity Rights with respect to
such Person.
(b) None of the Material Subsidiaries of the Borrower is, on the
date hereof, subject to any indenture, agreement, instrument or other
arrangement of the type described in Section 7.09.
SECTION 4.15. Disaster. Neither the business nor the properties
of the Borrower and its Subsidiaries is affected by any fire, explosion,
accident, strike, lockout or other dispute, drought, storm, hail, earthquake,
embargo, Act of God or of the public enemy or other casualty (whether or not
covered by insurance), which has had a Material Adverse Effect.
ARTICLE V
CONDITIONS
SECTION 5.01. Effective Date. The obligations of the Lenders to
make Loans and of the Issuing Banks to issue Letters of Credit hereunder shall
<PAGE>
not become effective until the date on which the Administrative Agent shall
have received each of the following documents, each of which shall be
satisfactory to the Administrative Agent (and to the extent specified below,
to each Lender) in form and substance (or such condition shall have been
waived in accordance with Section 10.02):
(a) Executed Counterparts. From each party hereto either (i) a
counterpart of this Agreement signed on behalf of such party or
(ii) written evidence satisfactory to the Administrative Agent (which
may include telecopy transmission of a signed signature page of this
Agreement) that such party has signed a counterpart of this Agreement.
(b) Opinion of Counsel to the Obligors. A favorable written
opinion (addressed to the Administrative Agent and the Lenders and dated
the Effective Date) of Ira Schreger, Senior Vice President, Legal,
counsel for the Obligors, substantially in the form of Exhibit C, and
covering such other matters relating to the Borrower, this Agreement or
the Transactions as the Required Lenders shall reasonably request. Each
Obligor hereby requests such counsel to deliver such opinion.
(c) Opinion of Special New York Counsel to The Chase Manhattan
Bank. An opinion, dated the Effective Date, of Milbank, Tweed, Hadley &
McCloy, special New York counsel to The Chase Manhattan Bank,
substantially in the form of Exhibit D (and The Chase Manhattan Bank
hereby instructs such counsel to deliver such opinion to the Lenders).
(d) Corporate Documents. Such documents and certificates as the
Administrative Agent or its counsel may reasonably request relating to
the organization, existence and good standing of each Obligor, the
authorization of the Transactions and any other legal matters relating
to the Obligors, this Agreement or the Transactions, all in form and
substance satisfactory to the Administrative Agent and its counsel.
(e) Officer's Certificate. A certificate, dated the Effective
Date and signed by the President, a Vice President or a Financial
Officer of the Borrower, confirming compliance with the conditions set
forth in the lettered clauses of the first sentence of Section 5.02.
(f) Business Plan. A copy of a five-year business plan for the
Borrower and its Subsidiaries in scope, form and substance and providing
such details reasonably satisfactory to the Lenders.
(g) Other Documents. Such other documents as the Administrative
Agent or any Lender or special New York counsel to The Chase Manhattan
Bank may reasonably request.
The obligation of any Lender to make its initial extension of
credit hereunder is also subject to the payment by the Borrower of such fees
as the Borrower shall have agreed to pay to any Lender, the Arranger, or the
Administrative Agent in connection herewith, including, without limitation,
the reasonable fees and expenses of Milbank, Tweed, Hadley & McCloy, special
New York counsel to The Chase Manhattan Bank, in connection with the
negotiation, preparation, execution and delivery of this Agreement and the
other Loan Documents and the extensions of credit hereunder (to the extent
that statements for such fees and expenses have been delivered to the
Borrower).
<PAGE>
The Administrative Agent shall notify the Borrower and the Lenders
of the Effective Date, and such notice shall be conclusive and binding.
Notwithstanding the foregoing, the obligations of the Lenders to make Loans
and of the Issuing Banks to issue Letters of Credit hereunder shall not become
effective unless each of the foregoing conditions is satisfied (or waived
pursuant to Section 10.02) on or prior to 3:00 p.m., New York City time, on
October 31, 1997 (and, in the event such conditions are not so satisfied or
waived, the Commitments shall terminate at such time).
SECTION 5.02. Each Credit Event. The obligation of each Lender
to make a Loan on the occasion of any Borrowing, and of each Issuing Bank to
issue, amend, renew or extend any Letter of Credit, is subject to the
satisfaction of the following conditions:
(a) the representations and warranties of the Borrower set forth
in this Agreement, and of each Obligor in each of the other Loan
Documents to which it is a party, shall be true and correct on and as of
the date of such Borrowing or the date of issuance, amendment, renewal
or extension of such Letter of Credit, as applicable (or, if any such
representation or warranty is expressly stated to have been made as of a
specific date, as of such specific date); and
(b) at the time of and immediately after giving effect to such
Borrowing or the issuance, amendment, renewal or extension of such
Letter of Credit, as applicable, no Default shall have occurred and be
continuing.
Each Borrowing and each issuance, amendment, renewal or extension of a Letter
of Credit shall be deemed to constitute a representation and warranty by the
Borrower on the date thereof as to the matters specified in the preceding
sentence.
ARTICLE VI
AFFIRMATIVE COVENANTS
Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall
have been paid in full and all Letters of Credit shall have expired or
terminated and all LC Disbursements shall have been reimbursed, the Borrower
covenants and agrees with the Lenders that:
SECTION 6.01. Financial Statements and Other Information. The
Borrower will furnish to the Administrative Agent and each Lender:
(a) within 95 days after the end of each fiscal year of the
Borrower, the audited consolidated balance sheet and related statements
of operations, stockholders' equity and cash flows of the Borrower and
its Subsidiaries as of the end of and for such year, setting forth in
each case in comparative form the figures for the previous fiscal year,
all reported on by Arthur Andersen LLP or other independent public
accountants of recognized national standing (without a "going concern"
or like qualification or exception and without any qualification or
exception as to the scope of such audit) to the effect that such
consolidated financial statements present fairly in all material
<PAGE>
respects the financial condition and results of operations of the Borrower and
its Subsidiaries on a consolidated basis in accordance with GAAP consistently
applied;
(b) within 50 days after the end of each of the first three
fiscal quarters of each fiscal year of the Borrower, the consolidated
balance sheet and related statements of operations, stockholders' equity
and cash flows of the Borrower and its Subsidiaries as of the end of and
for such fiscal quarter and the then elapsed portion of the fiscal year,
setting forth in each case in comparative form the figures for (or, in
the case of the balance sheet, as of the end of) the corresponding
period or periods of the previous fiscal year, all certified by a
Financial Officer of the Borrower as presenting fairly in all material
respects the financial condition and results of operations of the
Borrower and its Subsidiaries on a consolidated basis in accordance with
GAAP consistently applied, subject to normal year-end audit adjustments
and the absence of footnotes;
(c) concurrently with any delivery of financial statements under
clause (a) or (b) of this Section, a certificate of a Financial Officer
of the Borrower (i) certifying as to whether a Default has occurred and,
if a Default has occurred, specifying the details thereof and any action
taken or proposed to be taken with respect thereto, (ii) setting forth
reasonably detailed calculations demonstrating compliance with Sections
7.03, 7.11, 7.12, 7.13 and 7.14 and (iii) stating whether any change in
GAAP or in the application thereof has occurred since the date of the
audited financial statements referred to in Section 4.04 and, if any
such change has occurred, specifying the effect of such change on the
financial statements accompanying such certificate;
(d) concurrently with any delivery of financial statements under
clause (a) of this Section, a certificate of the accounting firm that
reported on such financial statements stating whether they obtained
knowledge during the course of their examination of such financial
statements of any Default (which certificate may be limited to the
extent required by accounting rules or guidelines);
(e) promptly after the same become publicly available, copies of
all periodic and other reports, proxy statements and other materials
filed by the Borrower or any of its Subsidiaries with the Securities and
Exchange Commission, or any Governmental Authority succeeding to any or
all of the functions of said Commission, or with any national securities
exchange, or distributed by the Borrower to its shareholders generally,
as the case may be; and
(f) promptly following any request therefor, such other
information regarding the operations, business affairs and financial
condition of the Borrower or any of its Subsidiaries, or compliance with
the terms of this Agreement and the other Loan Documents, as the
Administrative Agent or any Lender may reasonably request.
SECTION 6.02. Notices of Material Events. The Borrower will
furnish to the Administrative Agent and each Lender prompt written notice of
the following:
(a) the occurrence of any Default;
<PAGE>
(b) the filing or commencement of any action, suit or proceeding
by or before any arbitrator or Governmental Authority against or
affecting the Borrower or any of its Affiliates that, if adversely
determined, could reasonably be expected to result in a Material Adverse
Effect;
(c) the occurrence of any ERISA Event that, alone or together
with any other ERISA Events that have occurred, could reasonably be
expected to result in Liability of the Borrower and its Subsidiaries in
an aggregate amount exceeding $1,000,000;
(d) the assertion of any environmental matter by any Person
against, or with respect to the activities of, the Borrower or any of
its Subsidiaries and any alleged violation of or non-compliance with any
Environmental Laws or any permits, licenses or authorizations, other
than any environmental matter or alleged violation that, if adversely
determined, would not (either individually or in the aggregate) have a
Material Adverse Effect; and
(e) any other development that results in, or could reasonably be
expected to result in, a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement
of a Financial Officer or other executive officer of the Borrower setting
forth the details of the event or development requiring such notice and any
action taken or proposed to be taken with respect thereto.
SECTION 6.03. Preservation of Existence and Properties, Scope of
Business, Compliance with Law, Payment of Taxes and Claims, Preservation of
Enforceability. The Borrower will, and will cause each of its Subsidiaries
to, (a) preserve and maintain its corporate existence and all of its other
franchises, licenses, rights and privileges, (b) preserve, protect and obtain
all Intellectual Property, and preserve and maintain in good repair, working
order and condition all other properties, required for the conduct of the
Business, (c) maintain the substantial portion of its and their business in
substantially the same fields as the Business conducted on the Effective Date,
(d) comply with Applicable Law, (e) pay or discharge when due all Taxes and
all Liabilities that might become a Lien (other than a Permitted Encumbrance)
on any of its properties, provided that no such amount with respect to Taxes
need be paid if being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted and if a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made therefor and (f) take all action and obtain all consents
and Governmental Approvals required so that its obligations under the Loan
Documents will at all times be legal, valid and binding and enforceable in
accordance with their respective terms, except that this Section 6.03 (other
than clauses (a), in so far as it requires any Obligor to preserve its
corporate existence, (c) and (f)) shall not apply in any circumstance where
noncompliance, together with all other noncompliances with this Section 6.03,
will not have a Material Adverse Effect.
SECTION 6.04. Maintenance of Properties; Insurance.
(a) The Borrower will, and will cause each of its Subsidiaries
to, maintain or cause to be maintained in good repair, working order and
condition all properties used or useful in the Business and from time to time
<PAGE>
make or cause to be made all appropriate material repairs and renewals thereto
and replacements thereof, except to the extent that the failure to do so does
not have a Material Adverse Effect.
(b) Maintain insurance (including self-insurance) against at
least such risks and in at least such amounts as is customarily maintained by
similar businesses, or as may be required by Applicable Law or reasonably
requested by the Administrative Agent or the Required Lenders.
SECTION 6.05. Use of Proceeds. The Borrower will, and will cause
each of its Subsidiaries to, use the proceeds of the Loans for general
corporate purposes. None of the proceeds of any of the Loans shall be used to
purchase or carry, or to reduce or retire or refinance any credit incurred to
purchase or carry, any Margin Stock or to extend credit to others for the
purpose of purchasing or carrying any Margin Stock. If requested by any
Lender, the Borrower shall complete and sign Part I of a copy of Federal
Reserve Form G-3 or U-1 referred to in Regulation G or U and deliver such copy
to such Lender.
SECTION 6.06. Books and Records; Inspection Rights. The Borrower
will, and will cause each of its Subsidiaries to, keep proper books of record
and account in which full, true and correct entries are made of all dealings
and transactions in relation to its business and activities. The Borrower
will, and will cause each of its Subsidiaries to, permit any representatives
designated by the Administrative Agent or any Lender, upon reasonable prior
notice and during normal business hours, to visit and inspect its properties,
to examine and make extracts from its books and records, and to discuss its
affairs, finances and condition with its officers and independent accountants,
all at such reasonable times and as often as reasonably requested.
SECTION 6.07. Certain Obligations Respecting Subsidiaries. The
Borrower will take such action, and will cause each of its Subsidiaries to
take such action, from time to time as shall be necessary to ensure that all
Subsidiaries of the Borrower are "Subsidiary Guarantors" hereunder; except
that in the case of any such Subsidiary that is prohibited from being a
guarantor hereunder by any contractual restriction in favor of a Person that
is not an Affiliate and that was not entered into in contemplation of such
Subsidiary becoming a Subsidiary, or in the case of any Foreign Subsidiary if
such Subsidiary's becoming a "Subsidiary Guarantor" hereunder would give rise
to adverse tax consequences for the Borrower, the Borrower will take such
action when such restriction or adverse tax consequence, as the case may be,
ceases. The Borrower will cause such Subsidiary that is required to be a
Subsidiary Guarantor as provided in the preceding sentence to
(a) become a "Subsidiary Guarantor" hereunder pursuant to a
Guarantee Assumption Agreement, and
(b) deliver such proof of corporate action, incumbency of
officers, opinions of counsel and other documents as is consistent with
those delivered by each Obligor pursuant to Section 5.01 on the
Effective Date or as the Administrative Agent shall have requested.
<PAGE>
ARTICLE VII
NEGATIVE COVENANTS
Until the Commitments have expired or terminated and the principal
of and interest on each Loan and all fees payable hereunder have been paid in
full and all Letters of Credit have expired or terminated and all LC
Disbursements shall have been reimbursed, the Borrower covenants and agrees
with the Lenders that:
SECTION 7.01. Guarantees. The Borrower will not, nor will it
permit any of its Material Subsidiaries to, directly or indirectly, be
obligated, at any time, in respect of any Guarantee, except that this Section
7.01 shall not apply to:
(i) Existing Guarantees,
(ii) Permitted Guarantees,
(iii) a contribution arrangement entered into by the Borrower
and the Subsidiary Guarantors relating to Guarantees permitted under
this Section 7.01,
(iv) a Guarantee by the Borrower created to Guarantee those
Liabilities of SCC or SFC incurred by SCC or SFC in connection with
representations, warranties, covenants and indemnifications (other than
any such representation, warranty, covenant, or indemnification relating
to the performance or observance of any obligations by any other Person
or constituting Indebtedness of any other Person) agreed to by SCC or
SFC pursuant to the sale, transfer or other disposition by SCC or SFC of
any of its assets pursuant to a sale, transfer, or other disposition
permitted under Section 7.05,
(v) other Guarantees (other than LC Exposures) by the
Borrower (other than Guarantees of (x) Indebtedness or (y) Guarantees,
in each case of SCC) in an aggregate amount not in excess of $15,000,000
at any time,
(vi) the Guarantee of the Borrower created pursuant to the
GATX Documents,
(vii) Guarantees by the Borrower of the performance obligations
of its Subsidiaries issued in the ordinary course of business (other
than any Guarantees of Indebtedness), or
(viii) Guarantees by the Borrower of Indebtedness of Material
Subsidiaries permitted under Section 7.12(d) and 7.12(e)
Notwithstanding the foregoing, (x) to the extent the Indebtedness supported by
a Guarantee is counted in the calculation of any financial covenant set forth
in Section 7.13 or (y) to the extent any Guarantee supported by another
Guarantee is permitted to be outstanding under this Section 7.01, such
supporting Guarantee shall not be subject to the restrictions set forth in
this Section 7.01.
<PAGE>
SECTION 7.02. Liens. The Borrower will not, nor will it permit
any of its Material Subsidiaries to, directly or indirectly, permit to exist,
at any time, any Lien upon any of its properties or assets of any character,
whether now owned or hereafter acquired, or upon any income or profits
therefrom, except that this Section 7.02 shall not apply to Permitted
Encumbrances or Purchase Money Liens. Nothing in this Section 7.02 shall
prohibit the sale, assignment, transfer, conveyance or other disposition of
any Margin Stock owned by the Borrower or any of its Material Subsidiaries at
its fair value, or the creation, incurrence, assumption or existence of any
Lien on or with respect to any Margin Stock.
SECTION 7.03. Restricted Payments. The Borrower will not, nor
will it permit any of its Subsidiaries to, directly or indirectly, make any
Restricted Payment, unless, at the time of such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Borrower would, at the time of such Restricted Payment
and after giving pro forma effect thereto as if such Restricted Payment
had been made at the beginning of the most recent applicable four fiscal
quarters, have been permitted to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the
provisions of Section 7.11; and
(c) such Restricted Payment, together with the aggregate of all
other Restricted Payments made by the Borrower and its Subsidiaries from
December 22, 1993, is less than the sum of (x) $50,000,000 plus 50% of
cumulative consolidated net income of the Borrower for the period (taken
as one accounting period) from January 1, 1994 (or, if such consolidated
net income for such period is a deficit, minus 100% of such deficit)
plus (y) 100% of the aggregate net cash proceeds received by the
Borrower from any Person (other than a Subsidiary of the Borrower), from
the issue or sale of Equity Interests (other than Disqualified Stock) of
the Borrower and the principal amount of debt securities of the Borrower
that have been converted into Equity Interests (other than Disqualified
Stock) of the Borrower (other than by a Subsidiary of the Borrower)
subsequent to January 1, 1994.
The foregoing provisions will not prohibit: (i) the payment of any
dividend or making of any distribution within 60 days after the date of
declaration thereof, if at the date of declaration such dividend or
distribution would have complied with the provisions of this Agreement, (ii)
the redemption, retirement or repurchase of Indebtedness of the Borrower and
its Subsidiaries with the proceeds of the Loans; (iii) the purchase for value
of shares of Capital Security or other rights to acquire Capital Security held
by directors, officers or employees of the Borrower or a Subsidiary upon
death, disability, retirement or termination of employment in an aggregate
amount not to exceed $500,000 in any twelve-month period; provided, however,
that in the case of clauses (ii) or (iii), no Default or Event of Default
shall have occurred or be continuing at the time of such payment or as a
result thereof.
SECTION 7.04. Merger or Consolidation. The Borrower will not,
nor will it permit any of its Material Subsidiaries to, directly or
indirectly, merge or consolidate with, or sell, lease or dispose of all or
<PAGE>
substantially all of its assets as an entirety or substantially as an
entirety, in one transaction or a series of related transactions, to any
Person, except that, if after giving effect thereto no Default would exist and
the Borrower shall have delivered a certificate in form and substance
satisfactory to the Required Lenders demonstrating that no Default would so
exist, this Section 7.04 shall not apply to (a) any merger or consolidation of
the Borrower with any one or more Persons, provided that the Borrower shall be
the continuing Person, (b) any merger or consolidation of any Subsidiary with
any one or more other Subsidiaries, provided that (x) if any Subsidiary
involved in such merger or consolidation is a Wholly Owned Subsidiary, the
survivor shall be such Wholly Owned Subsidiary and (y) if an Obligor is
involved in such merger or consolidation, the survivor shall be such Obligor
or shall have taken such action as shall be satisfactory to the Administrative
Agent, its special counsel, the Issuing Banks, and the Required Lenders to
become an Obligor to the same extent as such Obligor, (c) the acquisition by
the Borrower or any Subsidiary of all or substantially all the capital stock
or assets of another Subsidiary (other than a Subsidiary Guarantor), or (d)
the sale or other disposition of the assets of a Subsidiary or the merger of a
Subsidiary, in a transaction in which the other Person or party to the
transaction is the survivor and to the extent such sale or merger constitutes
a disposition to which Section 7.05 does not apply.
SECTION 7.05. Disposition of Assets. The Borrower will not, nor
will it permit any of its Material Subsidiaries to, directly or indirectly,
sell, lease, license, transfer or otherwise dispose of any asset or any
interest therein, except that this Section 7.05 shall not apply to (a) any
disposition of any asset or interest therein in the ordinary course of
business, (b) any disposition of any obsolete or retired property not used or
useful in its business, (c) any disposition of any asset or interest therein
to the Borrower or any Subsidiary Guarantor, (d) any Discontinued Asset Sale,
any disposition of Non-Core Businesses, and any other Asset Sale approved by
the Required Lenders, (e) any disposition of Margin Stock, (f) any disposition
of receivables in accordance with the Receivables Purchase Agreement, (g) Sale
and Leaseback Transactions (in addition to those otherwise permitted by this
Section 7.05), as long as the aggregate gross proceeds from the sale portion
of such transactions permitted by this subclause (g) for the period from
December 1, 1997 through the Maturity Date do not exceed in the aggregate
$25,000,000, (h) other dispositions not otherwise permitted pursuant to
clauses (a) through (g) of this Section 7.05, provided that the Fair Market
Value of all assets so disposed of pursuant to this clause (h) on or after the
Effective Date does not exceed $10,000,000 per year or $25,000,000 in the
aggregate, and (i) any transaction to which any of the other provisions of
this Agreement (other than Section 7.08) is by its express terms inapplicable.
SECTION 7.06. Taxes of Other Persons. The Borrower will not, nor
will it permit any of its Subsidiaries to, directly or indirectly, (a) file a
consolidated tax return with any other Person other than, in the case of the
Borrower, its Subsidiary and, in the case of any such Subsidiary, the Borrower
or a Subsidiary of the Borrower, or (b) except as required by Applicable Law,
pay or enter into any Contract to pay any Taxes owing by any Person other than
the Borrower or its Subsidiary.
SECTION 7.07. Benefit Plans. The Borrower will not, nor will it
permit any of its Subsidiaries to, directly or indirectly, (a) establish,
amend, or become obligated to contribute to any Plan subject to the funding
requirements of ERISA (including any Existing Benefit Plan) in any manner that
<PAGE>
would increase the aggregate Unfunded Benefit Liabilities under all Plans
subject to the funding requirements of ERISA in an aggregate amount in excess
of $20,000,000; or (b) permit any Plan subject to the funding requirements of
ERISA to have a Funded Current Liability Percentage of less than 60%.
SECTION 7.08. Transactions with Affiliates. The Borrower will
not, nor will it permit any of its Subsidiaries to, directly or indirectly,
effect any transaction with any Affiliate on a basis less favorable than would
at the time be obtainable for a comparable transaction in arms-length dealing
with an unrelated third party, except that (a) the Borrower may effect the
transactions specifically permitted under Section 7.01 and 7.10(b) and (b) the
Borrower and its Subsidiaries may effect transactions with Affiliates having
an aggregate value (as determined by the Borrower using any reasonable method)
for all such transactions after the date hereof not exceeding $5,000,000.
SECTION 7.09. Limitation on Restrictive Covenants. The Borrower
will not, nor will it permit any of its Material Subsidiaries to, directly or
indirectly, permit to exist, at any time, any consensual restriction limiting
the ability (whether by covenant, event of default, subordination or
otherwise) of any of its Material Subsidiaries to (a) pay dividends or make
any other distributions on shares of its Capital Securities held by the
Borrower or any of its Material Subsidiaries, (b) pay any obligation owed to
the Borrower or any of its Material Subsidiaries, (c) make any loans or
advances to or investments in the Borrower or in any of its Material
Subsidiaries, (d) transfer any of its property or assets to the Borrower or
any of its Material Subsidiaries, or (e) create any Lien upon its property or
assets whether now owned or hereafter acquired or upon any income or profits
therefrom, except that this Section 7.09 shall not apply to (i) Permitted
Restrictive Covenants, (ii) any restriction contained in the Receivables
Purchase Agreement.
SECTION 7.10. Issuance or Disposition of Capital Securities;
Investments; Acquisitions. The Borrower will not, nor will it permit any of
its Subsidiaries to, directly or indirectly,
(a) issue any of its Capital Securities or sell, transfer or
otherwise dispose of any Capital Securities of any of its Subsidiaries, except
that this Section 7.10(a) shall not apply to (i) any issuance by the Borrower
of any of its Capital Securities other than Mandatorily Redeemable Stock, (ii)
any issuance by a Subsidiary Guarantor of any of its Capital Securities to the
Borrower, (iii) any disposition by any Subsidiary of the Borrower of any
Capital Securities of such Subsidiary to the Borrower and (iv) any sale,
transfer or other disposition permitted under Section 7.04 or 7.05, or any
Investment permitted under Section 7.10(b);
(b) make any Investments (including by way of capital
contribution, purchase of Capital Securities or otherwise), in, to or on
behalf of SCC other than Guarantees specifically permitted pursuant to
Sections 7.01(v) and 7.01(vii), and Investments in SCC in any year in an
amount in the aggregate not to exceed the amount of management fees, if any,
payable by SCC in such year pursuant to the GATX Documents; or
(c) make any acquisition of all or substantially all of the assets
of a corporation, partnership or other similar entity, or a division thereof,
except that if at the time thereof and immediately after giving effect thereto
no Default shall have occurred and be continuing and such acquisition is a
<PAGE>
friendly acquisition and the line of business activity of the acquired
business or asset is the Business.
SECTION 7.11. Short Term Indebtedness. The Borrower will not
permit the sum (without duplication) of Short Term Indebtedness for Money
Borrowed plus the LC Exposure plus the aggregate outstanding principal amount
of the Loans to exceed the aggregate amount of the Commitments at any time.
For purposes of this Section 7.11, "Short Term Indebtedness" shall not include
contingent reimbursement obligations in respect of payments under letters of
credit if such payments have not yet been made, except to the extent that the
amount of such contingent reimbursement obligations exceeds $75,000,000.
SECTION 7.12. Material Subsidiary Indebtedness. The Borrower
will not permit any of its Material Subsidiaries to have at any time any
Indebtedness (or Guarantees of Indebtedness to the extent such Indebtedness is
by its terms subordinate in right of payment to the Indebtedness outstanding
or available to be drawn hereunder), except that this Section 7.12 shall not
apply to (a) Existing Subsidiary Indebtedness of such Material Subsidiary, (b)
so long as written notice to the contrary shall not have been delivered by the
Administrative Agent to the Borrower during the occurrence and continuance of
an Event of Default, Indebtedness in connection with borrowings by such
Material Subsidiary from the Borrower pursuant to the Borrower's cash
management system in accordance with the customary practices of the Borrower
and its Material Subsidiaries as in effect on the Agreement Date, (c) the
Loans, (d) other Indebtedness of Material Subsidiaries other than those
incorporated in the United States in an aggregate amount not in excess of
$10,000,000, (e) other Indebtedness of Material Subsidiaries incorporated in
the United States in an aggregate amount not in excess of $15,000,000, (f)
Indebtedness of Sequa Receivables Corp. or any Material Subsidiary
constituting an originator (as defined in the PSA) incurred pursuant to the
terms of the Receivables Purchase Agreement or (g) Indebtedness incurred
pursuant to the GATX Documents.
SECTION 7.13. Certain Financial Covenants.
(a) Cash Flow Ratio. The Borrower will not permit the Cash Flow
Ratio to exceed the following respective ratios at any time during the
following respective periods:
Period Ratio
From the Effective Date
through December 31, 1997 4.00 to 1
From January 1, 1998
through December 31, 1998 3.75to 1
From January 1, 1999
through December 31, 1999 3.50to 1
From January 1, 2000
through December 31, 2000 3.25to 1
From January 1, 2001
and at all times thereafter 3.00to 1
<PAGE>
(b) Consolidated Net Worth. The Borrower will not permit its
Consolidated Net Worth at any time to be less than the sum of (a) $550,000,000
plus (b) 50% of consolidated net income (excluding net income of any Person
acquired by the Borrower or any of its Subsidiaries prior to such acquisition)
of the Borrower and its Subsidiaries for each full fiscal quarter (but not
less than zero for any fiscal quarter) occurring during the period commencing
October 1, 1997 and ending on the date of determination.
(c) Fixed Charges Ratio. The Borrower will not permit the Fixed
Charges Ratio to be less than 2.25 to 1 at any time:
SECTION 7.14. Capital Expenditures. The Borrower will not permit
the aggregate amount of Capital Expenditures by the Borrower and its
Subsidiaries to exceed the following respective amounts for the following
respective periods:
Period - Fiscal Year Amount
1997 $89,000,000
1998 $95,000,000
1999 $88,000,000
2000 $80,000,000
2001 $80,000,000
2002 $84,000,000
2003 $84,000,000
If the aggregate amount of Capital Expenditures for any period set forth in
the schedule above shall be less than the amount set forth opposite such
period in the schedule above, then 25% of such shortfall shall be added to the
amount of Capital Expenditures permitted for the immediately succeeding (but
not any other) period and, for purposes hereof, the amount of Capital
Expenditures made during any period shall be deemed to have been made first
from the amount of any carryover from any previous fiscal year and last from
the permitted amount set forth in the schedule above.
SECTION 7.15. Fiscal Year. The Borrower will not, nor will it
permit any of its Subsidiaries to, change the last day of their fiscal year
from December 31 of each year, or the last days of the first three fiscal
quarters in each of their fiscal years from March 31, June 30 and September 30
of each year, respectively.
ARTICLE VIII
EVENTS OF DEFAULT
If any of the following events ("Events of Default") shall occur:
(a) the Borrower shall fail to pay any principal of any Loan or
any reimbursement obligation in respect of any LC Disbursement when and
<PAGE>
as the same shall become due and payable hereunder, whether at the due date
thereof or at a date fixed for prepayment thereof or otherwise;
(b) the Borrower shall fail to pay any interest on any Loan or
any fee or any other amount (other than an amount referred to in
clause (a) of this Article) payable under this Agreement or under any
other Loan Document, when and as the same shall become due and payable,
and such failure shall continue unremedied for a period of three
Business Days;
(c) any representation or warranty made or deemed made by or on
behalf of the Borrower or any of its Subsidiaries in or in connection
with this Agreement or any other Loan Document or any amendment or
modification hereof or thereof, or in any report, certificate, financial
statement or other document furnished pursuant to or in connection with
this Agreement or any other Loan Document or any amendment or
modification hereof or thereof, shall prove to have been incorrect when
made or deemed made in any material respect;
(d) the Borrower shall fail to observe or perform any covenant,
condition or agreement contained in Section 6.02, 6.03 (with respect to
the Borrower's existence) or 6.05 or in Article VII;
(e) any Obligor shall fail to observe or perform any covenant,
condition or agreement contained in this Agreement (other than those
specified in clause (a), (b) or (d) of this Article) or any other Loan
Document and such failure shall continue unremedied for a period of 30
days after notice thereof from the Administrative Agent (given at the
request of any Lender) to the Borrower;
(f) the Borrower or any of its Subsidiaries shall fail to make
any payment (whether of principal or interest and regardless of amount)
in respect of any Material Indebtedness, when and as the same shall
become due and payable and any applicable grace period as originally in
effect (without giving effect to any extension thereof) under the
agreement or instrument governing such Material Indebtedness shall have
lapsed;
(g) any event or condition occurs (including, without limitation,
the lapse of any applicable grace period as originally in effect
(without giving effect to any extension thereof) under the agreement or
instrument governing such Material Indebtedness) that results in any
Material Indebtedness becoming due prior to its scheduled maturity or
that enables or permits the holder or holders of any Material
Indebtedness or any trustee or agent on its or their behalf to cause any
Material Indebtedness to become due, or to require the prepayment,
repurchase, redemption or defeasance thereof, prior to its scheduled
maturity; provided that this clause (g) shall not apply to secured
Indebtedness that becomes due as a result of the voluntary sale or
transfer of the property or assets securing such Indebtedness;
(h) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed seeking (i) liquidation,
reorganization or other relief in respect of the Borrower or any of its
Subsidiaries or its debts, or of a substantial part of its assets, under
any Federal, state or foreign bankruptcy, insolvency, receivership or
similar law now or hereafter in effect or (ii) the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar
official for the Borrower or any of its Subsidiaries or for a
<PAGE>
substantial part of its assets, and, in any such case, such proceeding or
petition shall continue undismissed for 60 days or an order or decree
approving or ordering any of the foregoing shall be entered;
(i) the Borrower or any of its Subsidiaries shall (i) voluntarily
commence any proceeding or file any petition seeking liquidation,
reorganization or other relief under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in
effect, (ii) consent to the institution of, or fail to contest in a
timely and appropriate manner, any proceeding or petition described in
clause (h) of this Article, (iii) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator, conservator
or similar official for the Borrower or any of its Subsidiaries or for a
substantial part of its assets, (iv) file an answer admitting the
material allegations of a petition filed against it in any such
proceeding, (v) make a general assignment for the benefit of creditors
or (vi) take any action for the purpose of effecting any of the
foregoing;
(j) the Borrower or any of its Subsidiaries shall become unable,
admit in writing its inability or fail generally to pay its debts as
they become due;
(k) one or more judgments for the payment of money in an
aggregate amount in excess of $3,500,000 shall be rendered against the
Borrower or any of its Subsidiaries or any combination thereof and the
same shall remain undischarged for a period of 30 consecutive days
during which execution shall not be effectively stayed, or any action
shall be legally taken by a judgment creditor to attach or levy upon any
assets of the Borrower or any of its Subsidiaries to enforce any such
judgment and such action shall not be stayed, vacated, nullified or
withdrawn for a period of five consecutive days;
(l) an ERISA Event shall have occurred that, in the opinion of
the Required Lenders, when taken together with all other ERISA Events
that have occurred, could reasonably be expected to result in Liability
of the Borrower and its Subsidiaries in an aggregate amount exceeding
(i) $3,000,000 in any year or (ii) $10,000,000 for all periods;
(m) a reasonable basis shall exist for the assertion against the
Borrower or any of its Subsidiaries, or any predecessor in interest of
the Borrower or any of its Subsidiaries or Affiliates, of (or there
shall have been asserted against the Borrower or any of its
Subsidiaries) any claims or liabilities, whether accrued, absolute or
contingent, based on or arising from the generation, storage, transport,
handling or disposal of Hazardous Materials by the Borrower or any of
its Subsidiaries, Affiliates or predecessors that, in the judgment of
the Required Lenders, are reasonably likely to be determined adversely
to the Borrower or any of its Subsidiaries, and the amount thereof
(either individually or in the aggregate) is reasonably likely to have a
Material Adverse Effect (insofar as such amount is payable by the
Borrower or any of its Subsidiaries but after deducting any portion
thereof that is reasonably expected to be paid by other creditworthy
Persons jointly and severally liable therefor);
(n) a Change in Control shall occur; or
(o) The Guarantee created under Article III shall be contested by
any Obligor;
<PAGE>
then, and in every such event (other than an event with respect to any Obligor
described in clause (h) or (i) of this Article), and at any time thereafter
during the continuance of such event, the Administrative Agent may, and at the
request of the Required Lenders shall, by notice to the Borrower, take either
or both of the following actions, at the same or different times:
(i) terminate the Commitments, and thereupon the Commitments shall terminate
immediately, and (ii) declare the Loans then outstanding to be due and payable
in whole (or in part, in which case any principal not so declared to be due
and payable may thereafter be declared to be due and payable), and thereupon
the principal of the Loans so declared to be due and payable, together with
accrued interest thereon and all fees and other obligations of the Obligors
accrued hereunder, shall become due and payable immediately, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by each Obligor; and in case of any event with respect to any
Obligor described in clause (h) or (i) of this Article, the Commitments shall
automatically terminate and the principal of the Loans then outstanding,
together with accrued interest thereon and all fees and other obligations of
the Obligors accrued hereunder, shall automatically become due and payable,
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by each Obligor.
ARTICLE IX
THE ADMINISTRATIVE AGENT
Each of the Lenders and each of the Issuing Banks hereby
irrevocably appoints the Administrative Agent as its agent hereunder and under
the other Loan Documents and authorizes the Administrative Agent to take such
actions on its behalf and to exercise such powers as are delegated to the
Administrative Agent by the terms hereof or thereof, together with such
actions and powers as are reasonably incidental thereto.
The bank serving as the Administrative Agent hereunder shall have
the same rights and powers in its capacity as a Lender as any other Lender and
may exercise the same as though it were not the Administrative Agent, and such
bank and its Affiliates may accept deposits from, lend money to and generally
engage in any kind of business with the Borrower or any Subsidiary or other
Affiliate thereof as if it were not the Administrative Agent hereunder.
The Administrative Agent shall not have any duties or obligations
except those expressly set forth herein and in the other Loan Documents.
Without limiting the generality of the foregoing, (a) the Administrative Agent
shall not be subject to any fiduciary or other implied duties, regardless of
whether a Default has occurred and is continuing, (b) the Administrative Agent
shall not have any duty to take any discretionary action or exercise any
discretionary powers, except discretionary rights and powers expressly
contemplated hereby or by the other Loan Documents that the Administrative
Agent is required to exercise in writing by the Required Lenders, and
(c) except as expressly set forth herein and in the other Loan Documents, the
Administrative Agent shall not have any duty to disclose, and shall not be
liable for the failure to disclose, any information relating to the Borrower
or any of its Subsidiaries that is communicated to or obtained by the bank
serving as Administrative Agent or any of its Affiliates in any capacity. The
Administrative Agent shall not be liable for any action taken or not taken by
it with the consent or at the request of the Required Lenders or in the
absence of its own gross negligence or wilful misconduct. The Administrative
Agent shall be deemed not to have knowledge of any Default unless and until
written notice thereof is given to the Administrative Agent by the Borrower or
<PAGE>
a Lender, and the Administrative Agent shall not be responsible for or have
any duty to ascertain or inquire into (i) any statement, warranty or
representation made in or in connection with this Agreement or any other Loan
Document, (ii) the contents of any certificate, report or other document
delivered hereunder or thereunder or in connection herewith or therewith,
(iii) the performance or observance of any of the covenants, agreements or
other terms or conditions set forth herein or therein, (iv) the validity,
enforceability, effectiveness or genuineness of this Agreement, any other Loan
Document or any other agreement, instrument or document, or (v) the
satisfaction of any condition set forth in Article V or elsewhere herein or
therein, other than to confirm receipt of items expressly required to be
delivered to the Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and shall
not incur any Liability for relying upon, any notice, request, certificate,
consent, statement, instrument, document or other writing believed by it to be
genuine and to have been signed or sent by the proper Person. The
Administrative Agent also may rely upon any statement made to it orally or by
telephone and believed by it to be made by the proper Person, and shall not
incur any Liability for relying thereon. The Administrative Agent may consult
with legal counsel (who may be counsel for an Obligor), independent
accountants and other experts selected by it, and shall not be liable for any
action taken or not taken by it in accordance with the advice of any such
counsel, accountants or experts.
The Administrative Agent may perform any and all its duties and
exercise its rights and powers by or through any one or more sub-agents
appointed by the Administrative Agent. The Administrative Agent and any such
sub-agent may perform any and all its duties and exercise its rights and
powers through their respective Related Parties. The exculpatory provisions
of the preceding paragraphs shall apply to any such sub-agent and to the
Related Parties of the Administrative Agent and any such sub-agent, and shall
apply to their respective activities in connection with the syndication of the
credit facilities provided for herein as well as activities as Administrative
Agent.
Subject to the appointment and acceptance of a successor
Administrative Agent as provided in this paragraph, the Administrative Agent
may resign at any time by notifying the Lenders, the Issuing Banks and the
Borrower. Upon any such resignation, the Required Lenders shall have the
right, in consultation with the Borrower, to appoint a successor. If no
successor shall have been so appointed by the Required Lenders and shall have
accepted such appointment within 30 days after the retiring Administrative
Agent gives notice of its resignation, then the retiring Administrative Agent
may, on behalf of the Lenders and the Issuing Banks, appoint a successor
Administrative Agent which shall be a bank with an office in New York, New
York, or an Affiliate of any such bank. Upon the acceptance of its
appointment as Administrative Agent hereunder by a successor, such successor
shall succeed to and become vested with all the rights, powers, privileges and
duties of the retiring Administrative Agent and the retiring Administrative
Agent shall be discharged from its duties and obligations hereunder. The fees
payable by the Borrower to a successor Administrative Agent shall be the same
as those payable to its predecessor unless otherwise agreed between the
Borrower and such successor. After the Administrative Agent's resignation
hereunder, the provisions of this Article and Section 10.03 shall continue in
effect for its benefit in respect of any actions taken or omitted to be taken
by it while it was acting as Administrative Agent.
<PAGE>
Each Lender acknowledges that it has, independently and without
reliance upon the Administrative Agent or any other Lender and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make
its own decisions in taking or not taking action under or based upon this
Agreement, any other Loan Document or any related agreement or any document
furnished hereunder or thereunder.
Except as otherwise provided in Section 10.02(b) with respect to
this Agreement, the Administrative Agent may, with the prior consent of the
Required Lenders (but not otherwise), consent to any modification, supplement
or waiver under any of the Loan Documents.
The Arranger identified on the cover page of this Agreement shall
have no duties or responsibilities hereunder. The Documentation Agent and the
Syndication Agent identified on the cover page of this Agreement shall have no
duties or responsibilities hereunder other than as Lenders hereunder.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Notices. Except in the case of notices and other
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to the Borrower or any Subsidiary Guarantor, to it at 200
Park Avenue, New York, New York 10166, Attention of Kenneth A. Drucker
(Telecopy No. (212) 370-1969), with a copy to Ira A. Schreger (Telecopy
No. (212) 661-2189);
(b) if to the Administrative Agent, to The Chase Manhattan Bank,
1 Chase Manhattan Plaza, 8th Floor, New York, New York 10081, Attention
Loan and Agency Services Group (Telecopy No. (212) 552-5658), with a
copy to The Chase Manhattan Bank, 270 Park Avenue, New York, New York
10017, Attention of Global Chemicals and Related Industries, Robert T.
Sacks (Telecopy No. (212) 270-1355);
(c) if to an Issuing Bank, to it at The Chase Manhattan Bank, 270
Park Avenue, New York, New York 10017, Attention of Robert T. Sacks
(Telecopy No. (212) 270-1355), or to it as The Bank of New York, 101
Barclay Street, 18W, New York, New York 10286, Attention of Karl
Anderson (Telecopy No. (212) 815-3311), as the case may be;
(d) if to the Swingline Lender, to it at The Chase Manhattan
Bank, 270 Park Avenue, New York, New York 10017, Attention of Robert T.
Sacks (Telecopy No. (212) 270-1355); and
(e) if to a Lender, to it at its address (or telecopy number) set
forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and
other communications hereunder by notice to the other parties hereto. All
<PAGE>
notices and other communications given to any party hereto in accordance with
the provisions of this Agreement shall be deemed to have been given on the
date of receipt.
SECTION 10.02. Waivers; Amendments.
(a) No failure or delay by the Administrative Agent, any Issuing
Bank or any Lender in exercising any right or power hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right
or power, or any abandonment or discontinuance of steps to enforce such a
right or power, preclude any other or further exercise thereof or the exercise
of any other right or power. The rights and remedies of the Administrative
Agent, the Issuing Banks and the Lenders hereunder are cumulative and are not
exclusive of any rights or remedies that they would otherwise have. No waiver
of any provision of this Agreement or consent to any departure by any Obligor
therefrom shall in any event be effective unless the same shall be permitted
by paragraph (b) of this Section, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
Without limiting the generality of the foregoing, the making of a Loan or
issuance of a Letter of Credit shall not be construed as a waiver of any
Default, regardless of whether the Administrative Agent, any Lender or any
Issuing Bank may have had notice or knowledge of such Default at the time.
(b) Neither this Agreement nor any provision hereof may be
waived, amended or modified except pursuant to an agreement or agreements in
writing entered into by the Borrower and the Required Lenders or by the
Borrower and the Administrative Agent with the consent of the Required
Lenders; provided that no such agreement shall (i) increase the Commitment of
any Lender without the written consent of such Lender, (ii) reduce the
principal amount of any Loan or LC Disbursement or reduce the rate of interest
thereon, or reduce any fees payable hereunder, without the written consent of
each Lender affected thereby, (iii) postpone the scheduled date of payment of
the principal amount of any Loan or LC Disbursement, or any interest thereon,
or any fees payable hereunder, or reduce the amount of, waive or excuse any
such payment, or postpone the scheduled date of expiration of any Commitment,
without the written consent of each Lender affected thereby, (iv) change
Section 2.17(b) or (c) in a manner that would alter the pro rata sharing of
payments required thereby, without the written consent of each Lender,
(v) change any of the provisions of this Section or the definition of the term
"Required Lenders" or any other provision hereof specifying the number or
percentage of Lenders required to waive, amend or modify any rights hereunder
or make any determination or grant any consent hereunder, without the written
consent of each Lender, or (iv) release any Subsidiary Guarantor from any of
its guarantee obligations under Article III without the written consent of
each Lender (except that the Administrative Agent shall release any Subsidiary
Guarantor from such obligations if all of the capital stock of such Subsidiary
Guarantor is sold to a Person that is not an Affiliate or a Subsidiary of the
Borrower in a transaction permitted by this Agreement); provided further that
no such agreement shall amend, modify or otherwise affect the rights or duties
of the Administrative Agent, the Issuing Banks or the Swingline Lender
hereunder without the prior written consent of the Administrative Agent, the
applicable Issuing Bank or the Swingline Lender, as the case may be; provided
further that any modification or supplement of Article III shall require the
consent of each Subsidiary Guarantor.
SECTION 10.03. Expenses; Indemnity; Damage Waiver.
(a) The Borrower shall pay (i) all reasonable out-of-pocket
expenses incurred by the Administrative Agent and its Affiliates, including
<PAGE>
the reasonable fees, charges and disbursements of counsel for the
Administrative Agent, in connection with the syndication of the credit
facilities provided for herein, the preparation and administration of this
Agreement and the other Loan Documents or any amendments, modifications or
waivers of the provisions hereof or thereof (whether or not the transactions
contemplated hereby or thereby shall be consummated), (ii) all out-of-pocket
expenses incurred by any Issuing Bank in connection with the issuance,
amendment, renewal or extension of any Letter of Credit or any demand for
payment thereunder and (iii) all out-of-pocket expenses incurred by the
Administrative Agent, any Issuing Bank or any Lender, including the fees,
charges and disbursements of any counsel for the Administrative Agent, any
Issuing Bank or any Lender, in connection with the enforcement or protection
of its rights in connection with this Agreement and the other Loan Documents,
including its rights under this Section, or in connection with the Loans made
or Letters of Credit issued hereunder, including in connection with any
workout, restructuring or negotiations in respect thereof.
(b) The Borrower shall indemnify the Administrative Agent, each
Issuing Bank and each Lender, and each Related Party of any of the foregoing
Persons (each such Person being called an "Indemnitee") against, and shall
hold each Indemnitee harmless from, any and all losses, claims, damages,
liabilities and related expenses, including the fees, charges and
disbursements of any counsel for any Indemnitee, incurred by or asserted
against any Indemnitee arising out of, in connection with, or as a result of
(i) the execution or delivery of this Agreement or any agreement or instrument
contemplated hereby, the performance by the parties hereto of their respective
obligations hereunder or the consummation of the Transactions or any other
transactions contemplated hereby, (ii) any Loan or Letter of Credit or the use
of the proceeds therefrom (including any refusal by the applicable Issuing
Bank to honor a demand for payment under a Letter of Credit if the documents
presented in connection with such demand do not strictly comply with the terms
of such Letter of Credit), (iii) any actual or alleged presence or release of
Hazardous Materials on or from any property owned or operated by the Borrower
or any of its Subsidiaries, or any Environmental Liability related in any way
to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective
claim, litigation, investigation or proceeding relating to any of the
foregoing, whether based on contract, tort or any other theory and regardless
of whether any Indemnitee is a party thereto; provided that such indemnity
shall not, as to any Indemnitee, be available to the extent that such losses,
claims, damages, liabilities or related expenses are determined by a court of
competent jurisdiction by final and nonappealable judgment to have resulted
from the gross negligence or wilful misconduct of such Indemnitee.
(c) To the extent that the Borrower fails to pay any amount
required to be paid by it to the Administrative Agent, any Issuing Bank or the
Swingline Lender under paragraph (a) or (b) of this Section, each Lender
severally agrees to pay to the Administrative Agent, such Issuing Bank or the
Swingline Lender, as the case may be, such Lender's Applicable Percentage
(determined as of the time that the applicable unreimbursed expense or
indemnity payment is sought) of such unpaid amount; provided that the
unreimbursed expense or indemnified loss, claim, damage, Liability or related
expense, as the case may be, was incurred by or asserted against the
Administrative Agent, such Issuing Bank or the Swingline Lender in its
capacity as such.
(d) To the extent permitted by Applicable Law, each Obligor shall
not assert, and hereby waives, any claim against any Indemnitee, on any theory
of liability, for special, indirect, consequential or punitive damages (as
opposed to direct or actual damages) arising out of, in connection with, or as
<PAGE>
a result of, this Agreement or any agreement or instrument contemplated
hereby, the Transactions, any Loan or Letter of Credit or the use of the
proceeds thereof.
(e) All amounts due under this Section shall be payable promptly
after written demand therefor.
SECTION 10.04. Successors and Assigns.
(a) The provisions of this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns permitted hereby, except that no Obligor may assign or otherwise
transfer any of its rights or obligations hereunder without the prior written
consent of each Lender (and any attempted assignment or transfer by any
Obligor without such consent shall be null and void). Nothing in this
Agreement, expressed or implied, shall be construed to confer upon any Person
(other than the parties hereto, their respective successors and assigns
permitted hereby and, to the extent expressly contemplated hereby, the Related
Parties of each of the Administrative Agent, the Issuing Banks and the
Lenders) any legal or equitable right, remedy or claim under or by reason of
this Agreement.
(b) Any Lender may assign to one or more assignees all or a
portion of its rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans at the time owing to it); provided
that (i) except in the case of an assignment to a Lender or an Affiliate of a
Lender, each of the Borrower and the Administrative Agent (and, in the case of
an assignment of all or a portion of a Commitment or any Lender's obligations
in respect of its LC Exposure or Swingline Exposure, the applicable Issuing
Bank and the Swingline Lender) must give their prior written consent to such
assignment (which consent shall not be unreasonably withheld), (ii) except in
the case of an assignment to a Lender or an Affiliate of a Lender or an
assignment of the entire remaining amount of the assigning Lender's
Commitment, the amount of the Commitment of the assigning Lender subject to
each such assignment (determined as of the date the Assignment and Acceptance
with respect to such assignment is delivered to the Administrative Agent)
shall not be less than $5,000,000 unless each of the Borrower and the
Administrative Agent otherwise consent, (iii) each partial assignment shall be
made as an assignment of a proportionate part of all the assigning Lender's
rights and obligations under this Agreement, (iv) the parties to each
assignment shall execute and deliver to the Administrative Agent an Assignment
and Acceptance, together with a processing and recordation fee of $3,500, and
(v) the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire; provided further that
any consent of the Borrower otherwise required under this paragraph shall not
be required if an Event of Default under clause (h) or (i) of Article VIII has
occurred and is continuing. Upon acceptance and recording pursuant to
paragraph (d) of this Section, from and after the effective date specified in
each Assignment and Acceptance, the assignee thereunder shall be a party
hereto and, to the extent of the interest assigned by such Assignment and
Acceptance, have the rights and obligations of a Lender under this Agreement,
and the assigning Lender thereunder shall, to the extent of the interest
assigned by such Assignment and Acceptance, be released from its obligations
under this Agreement (and, in the case of an Assignment and Acceptance
covering all of the assigning Lender's rights and obligations under this
Agreement, such Lender shall cease to be a party hereto but shall continue to
be entitled to the benefits of Sections 2.14, 2.15, 2.16 and 10.03). Any
assignment or transfer by a Lender of rights or obligations under this
Agreement that does not comply with this paragraph shall be treated for
<PAGE>
purposes of this Agreement as a sale by such Lender of a participation in such
rights and obligations in accordance with paragraph (e) of this Section.
(c) The Administrative Agent, acting for this purpose as an agent
of the Borrower, shall maintain at one of its offices in The City of New York
a copy of each Assignment and Acceptance delivered to it and a register for
the recordation of the names and addresses of the Lenders, and the Commitment
of, and principal amount of the Loans and LC Disbursements owing to, each
Lender pursuant to the terms hereof from time to time (the "Register"). The
entries in the Register shall be conclusive, and the Borrower, the
Administrative Agent, the Issuing Banks and the Lenders may treat each Person
whose name is recorded in the Register pursuant to the terms hereof as a
Lender hereunder for all purposes of this Agreement, notwithstanding notice to
the contrary. The Register shall be available for inspection by the Borrower,
any Issuing Bank and any Lender, at any reasonable time and from time to time
upon reasonable prior notice.
(d) Upon its receipt of a duly completed Assignment and
Acceptance executed by an assigning Lender and an assignee, the assignee's
completed Administrative Questionnaire (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in
paragraph (b) of this Section and any written consent to such assignment
required by paragraph (b) of this Section, the Administrative Agent shall
accept such Assignment and Acceptance and record the information contained
therein in the Register. No assignment shall be effective for purposes of
this Agreement unless it has been recorded in the Register as provided in this
paragraph.
(e) Any Lender may, without the consent of the Borrower, the
Administrative Agent, the Issuing Banks or the Swingline Lender, sell
participations to one or more banks or other entities (a "Participant") in all
or a portion of such Lender's rights and obligations under this Agreement and
the other Loan Documents (including all or a portion of its Commitment and the
Loans owing to it); provided that (i) such Lender's obligations under this
Agreement and the other Loan Documents shall remain unchanged, (ii) such
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations and (iii) the Borrower, the Administrative
Agent, the Issuing Banks and the other Lenders shall continue to deal solely
and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and the other Loan Documents. Any agreement
or instrument pursuant to which a Lender sells such a participation shall
provide that such Lender shall retain the sole right to enforce this Agreement
and the other Loan Documents and to approve any amendment, modification or
waiver of any provision of this Agreement or any other Loan Document; provided
that such agreement or instrument may provide that such Lender will not,
without the consent of the Participant, agree to any amendment, modification
or waiver described in the first proviso to Section 10.02(b) that affects such
Participant. Subject to paragraph (f) of this Section, the Borrower agrees
that each Participant shall be entitled to the benefits of Sections 2.14, 2.15
and 2.16 to the same extent as if it were a Lender and had acquired its
interest by assignment pursuant to paragraph (b) of this Section.
(f) A Participant shall not be entitled to receive any greater
payment under Section 2.14 or 2.16 than the applicable Lender would have been
entitled to receive with respect to the participation sold to such
Participant, unless the sale of the participation to such Participant is made
with the Borrower's prior written consent. A Participant that would be a
Foreign Lender if it were a Lender shall not be entitled to the benefits of
Section 2.16 unless the Borrower is notified of the participation sold to such
<PAGE>
Participant and such Participant agrees, for the benefit of the Borrower, to
comply with Section 2.16(e) as though it were a Lender.
(g) Any Lender may at any time pledge or assign a security
interest in all or any portion of its rights under this Agreement to secure
obligations of such Lender, including any such pledge or assignment to a
Federal Reserve Bank, and this Section shall not apply to any such pledge or
assignment of a security interest; provided that no such pledge or assignment
of a security interest shall release a Lender from any of its obligations
hereunder or substitute any such assignee for such Lender as a party hereto.
SECTION 10.05. Survival. All covenants, agreements,
representations and warranties made by the Borrower herein and in the
certificates or other instruments delivered in connection with or pursuant to
this Agreement shall be considered to have been relied upon by the other
parties hereto and shall survive the execution and delivery of this Agreement
and the making of any Loans and issuance of any Letters of Credit, regardless
of any investigation made by any such other party or on its behalf and
notwithstanding that the Administrative Agent, any Issuing Bank or any Lender
may have had notice or knowledge of any Default or incorrect representation or
warranty at the time any credit is extended hereunder, and shall continue in
full force and effect as long as the principal of or any accrued interest on
any Loan or any fee or any other amount payable under this Agreement is
outstanding and unpaid or any Letter of Credit is outstanding and so long as
the Commitments have not expired or terminated. The provisions of
Sections 2.14, 2.15, 2.16, 3.03 and 10.03 and Article IX shall survive and
remain in full force and effect regardless of the consummation of the
transactions contemplated hereby, the repayment of the Loans, the expiration
or termination of the Letters of Credit and the Commitments or the termination
of this Agreement or any provision hereof.
SECTION 10.06. Counterparts; Integration; Effectiveness. This
Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all
of which when taken together shall constitute a single contract. This
Agreement and any separate letter agreements with respect to fees payable to
the Administrative Agent constitute the entire contract among the parties
relating to the subject matter hereof and supersede any and all previous
agreements and understandings, oral or written, relating to the subject matter
hereof. Except as provided in Section 5.01, this Agreement shall become
effective when it shall have been executed by the Administrative Agent and
when the Administrative Agent shall have received counterparts hereof which,
when taken together, bear the signatures of each of the other parties hereto,
and thereafter shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns. Delivery of an executed
counterpart of a signature page of this Agreement by telecopy shall be
effective as delivery of a manually executed counterpart of this Agreement.
SECTION 10.07. Severability. Any provision of this Agreement
held to be invalid, illegal or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such invalidity, illegality
or unenforceability without affecting the validity, legality and
enforceability of the remaining provisions hereof; and the invalidity of a
particular provision in a particular jurisdiction shall not invalidate such
provision in any other jurisdiction.
SECTION 10.08. Right of Setoff. If an Event of Default shall
have occurred and be continuing, each Lender is hereby authorized at any time
and from time to time, to the fullest extent permitted by law, to set off and
<PAGE>
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by such
Lender to or for the credit or the account of any Obligor against any of and
all the obligations of any Obligor now or hereafter existing under this
Agreement held by such Lender, irrespective of whether or not such Lender
shall have made any demand under this Agreement and although such obligations
may be unmatured. The rights of each Lender under this Section are in
addition to other rights and remedies (including other rights of setoff) which
such Lender may have.
SECTION 10.09. Governing Law; Jurisdiction; Consent to Service
of Process.
(a) This Agreement shall be construed in accordance with and
governed by the law of the State of New York.
(b) Each Obligor hereby irrevocably and unconditionally submits,
for itself and its property, to the nonexclusive jurisdiction of the Supreme
Court of the State of New York sitting in New York County and of the United
States District Court of the Southern District of New York, and any appellate
court from any thereof, in any action or proceeding arising out of or relating
to this Agreement, or for recognition or enforcement of any judgment, and each
of the parties hereto hereby irrevocably and unconditionally agrees that all
claims in respect of any such action or proceeding may be heard and determined
in such New York State or, to the extent permitted by law, in such Federal
court. Each of the parties hereto agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement shall affect any right that the Administrative
Agent, any Issuing Bank or any Lender may otherwise have to bring any action
or proceeding relating to this Agreement against any Obligor or its properties
in the courts of any jurisdiction.
(c) Each Obligor hereby irrevocably and unconditionally waives,
to the fullest extent it may legally and effectively do so, any objection
which it may now or hereafter have to the laying of venue of any suit, action
or proceeding arising out of or relating to this Agreement in any court
referred to in paragraph (b) of this Section. Each of the parties hereto
hereby irrevocably waives, to the fullest extent permitted by law, the defense
of an inconvenient forum to the maintenance of such action or proceeding in
any such court.
(d) Each party to this Agreement irrevocably consents to service
of process in the manner provided for notices in Section 10.01. Nothing in
this Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.
SECTION 10.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY
HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY
(WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO
(A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES
THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN
THIS SECTION.
<PAGE>
SECTION 10.11. Headings. Article and Section headings and the
Table of Contents used herein are for convenience of reference only, are not
part of this Agreement and shall not affect the construction of, or be taken
into consideration in interpreting, this Agreement.
SECTION 10.12. Confidentiality. Each of the Administrative
Agent, the Issuing Banks and the Lenders agrees to maintain the
confidentiality of the Information (as defined below), except that Information
may be disclosed (a) to its and its Affiliates' directors, officers, employees
and agents, including accountants, legal counsel and other advisors (it being
understood that the Persons to whom such disclosure is made will be informed
of the confidential nature of such Information and instructed to keep such
Information confidential), (b) to the extent requested by any regulatory
authority, (c) to the extent required by Applicable Laws or regulations or by
any subpoena or similar legal process, (d) to any other party to this
Agreement, (e) in connection with the exercise of any remedies hereunder or
under any other Loan Document or any suit, action or proceeding relating to
this Agreement or any other Loan Document or the enforcement of rights
hereunder or thereunder, (f) subject to an agreement containing provisions
substantially the same as those of this Section, to any assignee of or
Participant in, or any prospective assignee of or Participant in, any of its
rights or obligations under this Agreement, (g) with the consent of the
Borrower or (h) to the extent such Information (i) becomes publicly available
other than as a result of a breach of this Section or (ii) becomes available
to the Administrative Agent, any Issuing Bank or any Lender on a
nonconfidential basis from a source other than an Obligor. For the purposes
of this Section, "Information" means all information received from any Obligor
relating to any Obligor or its business, other than any such information that
is available to the Administrative Agent, any Issuing Bank or any Lender on a
nonconfidential basis prior to disclosure by an Obligor; provided that, in the
case of information received from an Obligor after the date hereof, such
information is clearly identified at the time of delivery as confidential.
Any Person required to maintain the confidentiality of Information as provided
in this Section shall be considered to have complied with its obligation to do
so if such Person has exercised the same degree of care to maintain the
confidentiality of such Information as such Person would accord to its own
confidential information.
SECTION 10.13. Interest Rate Limitation. Notwithstanding
anything herein to the contrary, if at any time the interest rate applicable
to any Loan, together with all fees, charges and other amounts which are
treated as interest on such Loan under Applicable Law (collectively the
"Charges"), shall exceed the maximum lawful rate (the "Maximum Rate") which
may be contracted for, charged, taken, received or reserved by the Lender
holding such Loan in accordance with Applicable Law, the rate of interest
payable in respect of such Loan hereunder, together with all Charges payable
in respect thereof, shall be limited to the Maximum Rate and, to the extent
lawful, the interest and Charges that would have been payable in respect of
such Loan but were not payable as a result of the operation of this Section
shall be cumulated and the interest and Charges payable to such Lender in
respect of other Loans or periods shall be increased (but not above the
Maximum Rate therefor) until such cumulated amount, together with interest
thereon at the Federal Funds Effective Rate to the date of repayment, shall
have been received by such Lender.
SECTION 10.14. Waiver by Required Banks under the Existing Credit
Agreement. By executing this Agreement, certain of the Lenders, which such
Lenders constitute the Required Banks under the Existing Credit Agreement,
hereby waive the notice requirement in Section 1.09(d) of the Existing Credit
Agreement.
[Signature page follows.]<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective authorized officers as of the day and
year first above written.
SEQUA CORPORATION
By_________________________
Name: Kenneth A. Drucker
Title: Vice President & Treasurer
<PAGE>
<PAGE>
SUBSIDIARY GUARANTORS
CASCO INVESTORS CORPORATION
By________________________
Name: Kenneth A. Drucker
Title: Treasurer
CHROMALLOY AMERICAN CORPORATION
By________________________
Name: Kenneth A. Drucker
Title: Vice President & Treasurer
CHROMALLOY GAS TURBINE CORPORATION
By________________________
Name: Kenneth A. Drucker
Title: Vice President & Treasurer
SEQUA CHEMICALS, INC.
By________________________
Name: Kenneth A. Drucker
Title: Vice President & Treasurer
CASCO PRODUCTS CORPORATION
By________________________
Name: Kenneth A. Drucker
Title: Treasurer
<PAGE>
SEQUA FINANCIAL CORPORATION
By________________________
Name: Kenneth A. Drucker
Title: Vice President
NORTHERN CAN SYSTEMS, INC.
By________________________
Name: Kenneth A. Drucker
Title: Vice President & Treasurer
ATLANTIC RESEARCH CORPORATION
By________________________
Name: Kenneth A. Drucker
Title: Assistant Treasurer
<PAGE>
LENDERS
THE CHASE MANHATTAN BANK,
individually, as Swingline Lender,
as Issuing Bank and as Administrative
Agent
By_________________________
Name:
Title:
THE BANK OF NEW YORK, individually and
as Issuing Bank
By_________________________
Name:
Title:
THE BANK OF NOVA SCOTIA
By_________________________
Name:
Title:
BANK OF MONTREAL
By_________________________
Name:
Title:
THE FUJI BANK LIMITED (NEW YORK)
By_________________________
Name:
Title:
<PAGE>
BANKERS TRUST COMPANY
By_________________________
Name:
Title:
MELLON BANK N.A. (NEW YORK)
By_________________________
Name:
Title:
NATEXIS BANQUE BFCE (NEW YORK)
By_________________________
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION
By_________________________
Name:
Title:
THE SUMITOMO BANK LTD (NEW YORK)
By_________________________
Name:
Title:
<PAGE>
SCHEDULE I
Commitments
[See definitions of Commitment and "Lenders" in
Section 1.01]
<TABLE>
<CAPTION>
Amount of
Commitment
<S> <C>
The Chase Manhattan Bank $22,000,000
The Bank of New York $20,000,000
The Bank of Nova Scotia $20,000,000
Bank of Montreal $13,000,000
Bankers Trust Company $13,000,000
The Fuji Bank Limited (New York) $13,000,000
Mellon Bank N.A. (New York) $13,000,000
PNC Bank, National Association $13,000,000
The Sumitomo Bank Ltd (New York) $13,000,000
Natexis Banque BFCE (New York) $10,000,000
</TABLE>
<PAGE>
SCHEDULE II
Material Agreements and Liens
[See Section 4.13]
Part A - Material Agreements
Part B - Liens
<PAGE>
SCHEDULE III
Litigation and Environmental Matters
[See definition of "Disclosed Matters" in Section 1.01
and Section 4.06]
[See the attached pages from the Borrower's
Form 10-K for the fiscal year ended December 31, 1996]
<PAGE>
SCHEDULE IV
Subsidiaries and Investments
[See Section 4.14]
Part A - Subsidiaries
Part B - Investments
<PAGE>
SCHEDULE V
Existing Plans
<PAGE>
SCHEDULE VI
Discontinued Subsidiaries and Non-Core Business
[See definition of "Discontinued Asset Sale",
"Discontinued Subsidiaries" and
"Non-Core Business and Section 7.05]
Part A - Discontinued Subsidiaries
SCC and its Subsidiaries
Part B - Non-Core Business
Northern Can Systems, Inc.
<PAGE>
SCHEDULE VII
Permitted Restrictive Covenants
[See definition of "Permitted Restrictive Covenants" and Section 7.09]
None.
<PAGE>
SCHEDULE VIII
Existing Subsidiary Indebtedness
[See definition of "Existing Subsidiary Indebtedness" and Section 7.12]
<PAGE>
SCHEDULE IX
Existing Guarantee
[See definition of "Existing Guarantee" and Section 7.01]
<PAGE>
SCHEDULE X
Existing Liens
[See definition of "Permitted Encumbrances" and Section 7.02]
See Schedule II, Part B
<PAGE>
SCHEDULE XI
Existing Indebtedness
[See definition of "Permitted Indebtedness" and Section 7.03(b)]
See Schedule II, Part A and Schedule VIII
<PAGE>
EXHIBIT A
[Form of Assignment and Acceptance]
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement dated as of October 10,
1997 (as amended and in effect on the date hereof, the "Credit Agreement"),
among Sequa Corporation, the Lenders named therein and The Chase Manhattan
Bank, as Administrative Agent for the Lenders. Terms defined in the Credit
Agreement are used herein with the same meanings.
The Assignor named on the reverse hereof hereby sells and assigns,
without recourse, to the Assignee named on the reverse hereof, and the
Assignee hereby purchases and assumes, without recourse, from the Assignor,
effective as of the Assignment Date set forth on the reverse hereof, the
interests set forth on the reverse hereof (the "Assigned Interest") in the
Assignor's rights and obligations under the Credit Agreement, including,
without limitation, the interests set forth on the reverse hereof in the
Commitment of the Assignor on the Assignment Date and Revolving Loans owing to
the Assignor which are outstanding on the Assignment Date, together with
unpaid interest accrued on the assigned Loans to the Assignment Date, the
participations in Letters of Credit, LC Disbursements and Swingline Loans held
by the Assignor on the Assignment Date, and the amount, if any, set forth on
the reverse hereof of the fees accrued to the Assignment Date for the account
of the Assignor. The Assignee hereby acknowledges receipt of a copy of the
Credit Agreement. From and after the Assignment Date (i) the Assignee shall
be a party to and be bound by the provisions of the Credit Agreement and, to
the extent of the interests assigned by this Assignment and Acceptance, have
the rights and obligations of a Lender thereunder and (ii) the Assignor shall,
to the extent of the interests assigned by this Assignment and Acceptance,
relinquish its rights and be released from its obligations under the Credit
Agreement.
This Assignment and Acceptance is being delivered to the
Administrative Agent together with (i) if the Assignee is a Foreign Lender,
any documentation required to be delivered by the Assignee pursuant to
Section 2.16(e) of the Credit Agreement, duly completed and executed by the
Assignee, and (ii) if the Assignee is not already a Lender under the Credit
Agreement, an Administrative Questionnaire in the form supplied by the
Administrative Agent, duly completed by the Assignee. The [Assignee/Assignor]
shall pay the fee payable to the Administrative Agent pursuant to
Section 10.04(b) of the Credit Agreement.
This Assignment and Acceptance shall be governed by and construed
in accordance with the laws of the State of New York.
<PAGE>
Date of Assignment:
Legal Name of Assignor:
Legal Name of Assignee:
Assignee's Address for Notices:
Effective Date of Assignment
("Assignment Date")1:
<TABLE>
<S> <C> <C>
Percentage Assigned of
Facility/Commitment
(set forth, to at
least 8 decimals, as a
percentage of the
Facility and the
aggregate Commitments
Principal Amount of all Lenders
Facility Assigned thereunder
Commitment Assigned: $ %
Revolving Loans:
Fees Assigned (if any):
</TABLE>
The terms set forth above and on the reverse side hereof are hereby agreed
to:
[Name of Assignor] , as Assignor
By:__________________________________
Name:
Title:
<PAGE>
[Name of Assignee] , as Assignee
By:__________________________________
Name:
Title:
<PAGE>
The undersigned hereby consent to the within assignment:1
[Name of the Borrower]
By:_________________________
Name:
Title:
The Chase Manhattan Bank,
as Administrative Agent
By:_________________________
Name:
Title:
[Name of Issuing Bank]
By:_________________________
Name:
Title:
[Name of Swingline Lender]
By:_________________________
Name:
Title:
<PAGE>
EXHIBIT B
[Form of Guarantee Assumption Agreement]
GUARANTEE ASSUMPTION AGREEMENT
GUARANTEE ASSUMPTION AGREEMENT dated as of ________ __, ____ by
[NAME OF ADDITIONAL SUBSIDIARY GUARANTOR], a ________ corporation (the
"Additional Subsidiary Guarantor"), in favor of The Chase Manhattan Bank, as
administrative agent for the lenders or other financial institutions or
entities party as "Lenders" to the Credit Agreement referred to below (in such
capacity, together with its successors in such capacity, the "Administrative
Agent").
Sequa Corporation, a Delaware corporation, the Subsidiary
Guarantors referred to therein and the Administrative Agent are parties to a
Credit Agreement dated as of October 10, 1997 (as modified and supplemented
and in effect from time to time, the "Credit Agreement").
Pursuant to Section 6.07 of the Credit Agreement, the Additional
Subsidiary Guarantor hereby agrees to become a "Subsidiary Guarantor" for all
purposes of the Credit Agreement. Without limiting the foregoing, the
Additional Subsidiary Guarantor hereby, jointly and severally with the other
Subsidiary Guarantors, guarantees to each Lender and the Administrative Agent
and their respective successors and assigns the prompt payment in full when
due (whether at stated maturity, by acceleration or otherwise) of all
Guaranteed Obligations (as defined in Section 3.01 of the Credit Agreement) in
the same manner and to the same extent as is provided in Article III of the
Credit Agreement. In addition, the Additional Subsidiary Guarantor hereby
makes the representations and warranties set forth in Sections 4.01, 4.02 and
4.03 of the Credit Agreement with respect to itself and its obligations under
this Agreement, as if each reference in such Sections to the Loan Documents
included reference to this Agreement.
<PAGE>
IN WITNESS WHEREOF, the Additional Subsidiary Guarantor has caused
this Guarantee Assumption Agreement to be duly executed and delivered as of
the day and year first above written.
[NAME OF ADDITIONAL SUBSIDIARY GUARANTOR]
By
Name:
Title:
Accepted and agreed:
The Chase Manhattan Bank,
as Administrative Agent
By
Name:
Title:
<PAGE>
EXHIBIT C
[Form of Opinion of Counsel to the Obligors]
__________, 199_
To the Lenders party to the Credit
Agreement referred to below and The Chase
Manhattan Bank, as Administrative Agent
Ladies and Gentlemen:
I have acted as counsel to Sequa Corporation (the "Borrower"), and
its subsidiaries and affiliates, in connection with the Credit Agreement (the
"Credit Agreement") dated as of October 10, 1997, among the Borrower, the
Subsidiary Guarantors party thereto, the lenders party thereto and The Chase
Manhattan Bank, as Administrative Agent, providing for extensions of credit to
be made by said lenders to the Borrower in an aggregate principal or face
amount not exceeding $150,000,000. Except as otherwise provided herein, terms
defined in the Credit Agreement are used herein as defined therein. This
opinion letter is being delivered pursuant to Section 5.01(b) of the Credit
Agreement.
In rendering the opinions expressed below, I have examined the
following agreements, instruments and other documents:
(a) the Credit Agreement; and
(b) such records of the Obligors and such other documents as I
have deemed necessary as a basis for the opinions expressed
below.
The Borrower and its Subsidiaries and affiliates party to the Credit Agreement
are herein collectively referred to as the "Obligors".
In my examination, I have assumed the genuineness of all
signatures, the authenticity of all documents submitted to me as originals and
the conformity with authentic original documents of all documents submitted to
me as copies. When relevant facts were not independently established, I have
relied upon statements of governmental officials and upon representations made
in or pursuant to the Credit Agreement and certificates of appropriate
representatives of the Obligors.
In rendering the opinions expressed below, I have assumed, with
respect to all of the documents referred to in this opinion letter, that
(except, to the extent set forth in the opinions expressed below, as to the
Obligors):
(i) such documents have been duly authorized by, have been duly
executed and delivered by, and constitute legal, valid,
binding and enforceable obligations of, all of the parties
to such documents;
(ii) all signatories to such documents have been duly authorized;
and
<PAGE>
(iii) all of the parties to such documents are duly organized and
validly existing and have the power and authority (corporate
or other) to execute, deliver and perform such documents.
Based upon and subject to the foregoing and subject also to the
comments and qualifications set forth below, and having considered such
questions of law as I have deemed necessary as a basis for the opinions
expressed below, I am of the opinion that:
1. The Borrower is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. Each
Subsidiary of the Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the respective state
indicated opposite its name in Schedule V to the Credit Agreement. Each
of the Borrower and its Subsidiaries has all requisite power and
authority to carry on its business as now conducted and, except where
the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect, is
qualified to do business in, and is in good standing in, every
jurisdiction where such qualification is required.
2. The Transactions are within the corporate powers of each
Obligor.
3. The Transactions have been duly authorized by all necessary
corporate action on the part of each Obligor.
4. The Credit Agreement has been duly executed and delivered by
each Obligor party thereto.
5. The Credit Agreement constitutes the legal, valid and binding
obligation of each Obligor party thereto, enforceable against such
Obligor in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights of creditors generally and except as
the enforceability of the Credit Agreement is subject to the application
of general principles of equity (regardless of whether considered in a
proceeding in equity or at law), including, without limitation, (a) the
possible unavailability of specific performance, injunctive relief or
any other equitable remedy and (b) concepts of materiality,
reasonableness, good faith and fair dealing.
6. The Transactions (a) do not require any consent or approval
of, registration or filing with, or any other action by, any
Governmental Authority, except such as have been obtained or made and
are in full force and effect, (b) will not violate any applicable law or
regulation or the charter, by-laws or other organizational documents of
the Borrower or any of its Subsidiaries or any order of any Governmental
Authority, (c) will not violate or result in a default under any
indenture, agreement or other instrument binding upon the Borrower or
any of its Subsidiaries or assets, or give rise to a right thereunder to
require any payment to be made by any such Person, and (d) will not
result in the creation or imposition of any Lien on any asset of the
Borrower or any of its Subsidiaries.
7. [Except as set forth in Schedule IV to the Credit Agreement,]
I have no knowledge (after due inquiry) of any actions, suits or
proceedings by or before any arbitrator or Governmental Authority now
pending against or threatened against or affecting the Obligors or any
of their respective Subsidiaries (a) as to which there is a reasonable
possibility of an adverse determination and that, if adversely
determined, could reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect (other than the Disclosed
Matters) or (b) that involve the Credit Agreement or the Transactions.
<PAGE>
8. Neither the Borrower nor any of its Subsidiaries is (a) an
"investment company" as defined in, or subject to regulation under, the
Investment Company Act of 1940 or (b) a "holding company" as defined in,
or subject to regulation under, the Public Utility Holding Company Act
of 1935.
The foregoing opinions are subject to the following comments and
qualifications:
(A) The enforceability of Sections 3.03 and 10.03 of the Credit
Agreement may be limited by (i) laws rendering unenforceable
indemnification contrary to Federal or state securities laws and the
public policy underlying such laws and (ii) laws limiting the
enforceability of provisions exculpating or exempting a party, or
requiring indemnification of a party for, liability for its own action
or inaction, to the extent the action or inaction involves gross
negligence, recklessness, willful misconduct or unlawful conduct.
(B) The enforceability of provisions in the Credit Agreement to
the effect that terms may not be waived or modified except in writing
may be limited under certain circumstances.
(C) I express no opinion as to (i) the effect of the laws of any
jurisdiction in which any Lender is located (other than the State of New
York) that limit the interest, fees or other charges such Lender may
impose, (ii) the last sentence of Section 2.17(c) or Section 3.06 of the
Credit Agreement and (iii) the first sentence of Section 10.09(b) of the
Credit Agreement, insofar as such sentence relates to the subject matter
jurisdiction of the United States District Court for the Southern
District of New York to adjudicate any controversy related to the Credit
Agreement.
(D) I express no opinion as to the applicability to the
obligations of any Subsidiary Guarantor of Section 548 of the Bankruptcy
Code, Article 10 of the New York Debtor Creditor Law or any other
provision of law relating to fraudulent conveyances, transfers or
obligations, nor do I express any opinion as to the enforceability of
such obligations.
The foregoing opinions are limited to matters involving the
Federal laws of the United States, the Delaware General Corporation Law and
the law of the State of New York, and I do not express any opinion as to the
laws of any other jurisdiction.
At the request of my clients, this opinion letter is, pursuant to
Section 5.01(b) of the Credit Agreement, provided to you by me in my capacity
as General Counsel to the Obligors and may not be relied upon by any Person
for any purpose other than in connection with the transactions contemplated by
the Credit Agreement without, in each instance, my prior written consent.
Very truly yours,
<PAGE>
EXHIBIT D
[Form of Opinion of Special New York Counsel to The Chase Manhattan Bank]
__________, 199_
To the Lenders party to the Credit
Agreement referred to below and The Chase
Manhattan Bank, as Administrative Agent
Ladies and Gentlemen:
We have acted as special New York counsel to The Chase Manhattan
Bank in connection with the Credit Agreement (the "Credit Agreement") dated as
of October 10, 1997, among Sequa Corporation, the Subsidiary Guarantors party
thereto, the lenders party thereto and The Chase Manhattan Bank, as
Administrative Agent, providing for extensions of credit to be made by said
lenders to the Borrower in an aggregate principal or face amount not exceeding
$150,000,000. Except as otherwise provided herein, terms defined in the
Credit Agreement are used herein as defined therein. This opinion letter is
being delivered pursuant to Section 5.01(c) of the Credit Agreement.
In rendering the opinions expressed below, we have assumed, with
respect to all of the documents referred to in this opinion letter, that:
(i) such documents have been duly authorized by, have been duly
executed and delivered by, and (except to the extent set
forth in the opinions expressed below as to the Obligors)
constitute legal, valid, binding and enforceable obligations
of, all of the parties to such documents;
(ii) all signatories to such documents have been duly authorized;
and
(iii) all of the parties to such documents are duly organized and
validly existing and have the power and authority (corporate
or other) to execute, deliver and perform such documents.
Based upon and subject to the foregoing and subject also to the
comments and qualifications set forth below, and having considered such
questions of law as we have deemed necessary as a basis for the opinions
expressed below, we are of the opinion that the Credit Agreement constitutes
the legal, valid and binding obligation of each Obligor party thereto,
enforceable against such Obligor in accordance with its terms, except as may
be limited by bankruptcy, insolvency, reorganization, fraudulent transfer or
conveyance, moratorium or other similar laws relating to or affecting the
rights of creditors generally and except as the enforceability of the Credit
Agreement is subject to the application of general principles of equity
(regardless of whether considered in a proceeding in equity or at law),
including, without limitation, (a) the possible unavailability of specific
performance, injunctive relief or any other equitable remedy and (b) concepts
of materiality, reasonableness, good faith and fair dealing.
The foregoing opinions are subject to the following comments and
qualifications:
(A) The enforceability of Sections 3.03 and 10.03 of the Credit
Agreement may be limited by (i) laws rendering unenforceable
indemnification contrary to Federal or state securities laws and the
public policy underlying such laws and (ii) laws limiting the
<PAGE>
enforceability of provisions exculpating or exempting a party, or
requiring indemnification of a party for, liability for its own action
or inaction, to the extent the action or inaction involves gross
negligence, recklessness, willful misconduct or unlawful conduct.
(B) Clause (ii) of the second sentence of Section 3.02 of the
Credit Agreement may not be enforceable to the extent that the
Guaranteed Obligations are materially modified.
(C) The enforceability of provisions in the Credit Agreement to
the effect that terms may not be waived or modified except in writing
may be limited under certain circumstances.
(D) We express no opinion as to (i) the effect of the laws of any
jurisdiction in which any Lender is located (other than the State of New
York) that limit the interest, fees or other charges such Lender may
impose, (ii) the last sentence of Section 2.17(c), Section 3.06 or
Section 3.09 of the Credit Agreement and (iii) the first sentence of
Section 10.09(b) of the Credit Agreement, insofar as such sentence
relates to the subject matter jurisdiction of the United States District
Court for the Southern District of New York to adjudicate any
controversy related to the Credit Agreement.
(E) We express no opinion as to the applicability to the
obligations of any Subsidiary Guarantor of Section 548 of the Bankruptcy
Code, Article 10 of the New York Debtor Creditor Law or any other
provision of law relating to fraudulent conveyances, transfers or
obligations, nor do we express any opinion as to the enforceability of
such obligations.
The foregoing opinions are limited to matters involving the
Federal laws of the United States and the law of the State of New York, and we
do not express any opinion as to the laws of any other jurisdiction.
At the request of our client, this opinion letter is, pursuant to
Section 5.01(c) of the Credit Agreement, provided to you by us in our capacity
as special New York counsel to The Chase Manhattan Bank and may not be relied
upon by any Person for any purpose other than in connection with the
transactions contemplated by the Credit Agreement without, in each instance,
our prior written consent.
Very truly yours,
[Opining and Consultant
Partner's initials]
<PAGE>
Exhibit 10.2
SEQUA CORPORATION
1998 Key Employees Stock Option Plan
------------------------------------
1. Purpose
-------
The purpose of the 1998 Key Employees Stock Option Plan
(the "Plan") is to encourage and enable selected officers and
other key employees of Sequa Corporation (the "Company") and its
subsidiaries to acquire a proprietary interest in the Company
through ownership of common stock of the Company. Such ownership
will provide such employees with a more direct stake in the
future welfare of the Company and encourage them to remain with
the Company and its subsidiaries. It is also expected that the
Plan will encourage qualified persons to seek and accept
employment with the Company and its subsidiaries.
As used herein, the terms "subsidiary" and "parent"
shall mean any present or future corporation which is or would be
a "subsidiary corporation" or "parent corporation" of the Company
as the term is defined in Section 424 of the Internal Revenue
Code of 1986, as amended (the "Code").
2. Administration of the Plan
--------------------------
The Plan shall be administered by the Compensation
Committee (the "Committee") appointed from time to time by the
Board of Directors of the Company, which Committee shall consist
of not less than three (3) members of such Board of Directors.
The members of the Committee shall not be eligible to receive
options and shall be "Non-Employee Directors" as defined in Rule
16b-3(b)(3) under the Securities Exchange Act of 1934, as
amended.
Subject to the provisions of the Plan, the Committee
shall have full and final authority in its discretion (a) to
determine the key employees to be granted options, (b) to
determine whether each option granted is to be an option
qualified as an "Incentive Stock Option" within the meaning of
Section 422 of the Code ("Incentive Stock Option"), an option not
so qualified ("Non-Qualified Stock Option"), or a combination of
each such type; provided, however, that no such combination shall
be of a nature which will disqualify an Incentive Stock Option,
(c) to determine the number of shares subject to each option,
which shall not exceed the amount set forth in subparagraph 7(g)
hereof, (d) to determine the option price of the shares subject
to each option, which shall not be less than the minimum
specified in subparagraph 6(b) hereof, (e) to determine the time
<PAGE>
or times when each option will be granted, the time or times when
each option will become exercisable and the duration of the
exercise period, (f) to prescribe the terms and provisions of
agreements, which need not be identical (the "Stock Option
Agreement"), evidencing options granted hereunder, (g) to adopt,
amend and rescind such rules and regulations as the Committee
deems advisable in the administration of the Plan, (h) to
construe and interpret the Plan, the rules and regulations
adopted hereunder and the Stock Option Agreements, and (i) to
make all other determinations deemed necessary or advisable for
the administration of the Plan.
3. Shares of Stock Subject to the Plan
-----------------------------------
Except as provided in subparagraph 7(h) and paragraph 8
hereof, the number of shares that may be issued or transferred
pursuant to the exercise of options shall not exceed 500,000
shares of the Company's Class A Common Stock, no par value
("Class A Common Stock"). Such shares may be authorized and
unissued shares or previously issued shares acquired or to be
acquired by the Company and held in treasury. Any share subject
to an option which for any reason expires or is terminated
unexercised as to such share may again be subject to an option
under the Plan.
4. Eligibility
-----------
Options may be granted only to officers and other key
employees who are employed by the Company or one of its
subsidiaries. An option may be granted to a director of the
Company who is not also a member of the Committee, provided that
the director is also an officer or key employee.
5. Duration of the Plan
--------------------
Subject to the provisions of paragraph 9 hereof, the
Plan shall remain in effect until all shares subject or which may
become subject to the Plan shall have been purchased pursuant to
the exercise of options granted under the Plan, provided that no
options may be granted after February 25, 2008.
6. Options
-------
Options shall be evidenced by Stock Option Agreements
in such form, not inconsistent with the Plan, as the Committee
shall approve from time to time, which agreements shall contain
in substance the following terms and conditions.
(a) Option. "Option" shall mean either an Incentive
<PAGE>
Stock Option or a Non-Qualified Option to purchase shares of
Class A Common Stock pursuant to the Plan. The Stock Option
Agreement shall distinguish between Incentive Stock Options and
Non-Qualified Stock Options granted pursuant to the Plan and, in
the case of Non-Qualified Stock Options, shall contain one or
more provisions that would disqualify such options as Incentive
Stock Options.
(b) Option Price. The purchase price under each
option shall be not less than 100% of the fair market value of
the Class A Common Stock on the date the option is granted. In
the case of an Incentive Stock Option granted to an employee
owning (actually or constructively under Section 424(d) of the
Code) more than 10% of the total combined voting power of all
classes of stock of the Company or of any parent or subsidiary (a
"10% Stockholder"), the option price shall be not less than 110%
of the fair market value of the Class A Common Stock subject to
the option on the date of grant.
(c) Medium and Time of Payment. Stock purchased
pursuant to an option agreement shall be paid for (1) entirely in
cash at the time of purchase, (2) entirely in shares by tendering
and delivering to the Company shares of the Class A Common Stock
or Class B Common Stock, no par value, of the Company ("Class B
Common Stock") owned beneficially by the optionee and having an
aggregate market value equal to the aggregate cash exercise price
applicable to the optionee's option, (3) partly in cash and
partly in shares of Class A Common Stock or Class B Common Stock,
or (4) by means of deferred payment from the proceeds of sale
through a broker on the exercise date of some or all of the
shares to which such exercise relates. The market value per
share of such stock shall be the last sales price of the Class A
Common Stock or Class B Common Stock, as the case may be, on the
New York Stock Exchange on the day preceding the day on which the
option is exercised. Upon receipt of payment, the Company shall,
without stock transfer tax to the optionee or other person
entitled to exercise the option, deliver to the person exercising
the option a certificate or certificates for such shares. It
shall be a condition to the performance of the Company's
obligation to issue or transfer shares of stock upon exercise of
an option or options that the optionee pay, or make provisions
satisfactory to the Company for the payment of, any taxes (other
than stock transfer taxes) which the Company is obligated to
collect with respect to the issue or transfer of such shares of
stock upon such exercise. No shares of Class A Common Stock or
Class B Common Stock shall be accepted as full or partial payment
for the exercise of an option hereunder unless such securities
have been beneficially owned for a period of not less than one
year by the person tendering them for payment.
<PAGE>
7. Provisions Relating to Options
------------------------------
Options granted under paragraph 6 of the Plan shall be
subject to the following additional provisions:
(a) Waiting Period and Term. No options may be
exercised during the first twelve months of their respective
terms (the "option holding period") other than in the event that
death of the grantee occurs prior to the expiration of the
twelve-month period. No option may be exercised after the
expiration of ten (10) years from the date of grant of such
option; provided, however, that in the case of an Incentive Stock
Option granted to a 10% Stockholder, the Incentive Stock Option
granted shall be exercisable in whole or in part at such time or
times during the period commencing one year after the date the
option is granted and ending not more than five (5) years after
the date such option is granted.
(b) Partial Exercise. Partial exercise will be
permitted from time to time, provided that no partial exercise
may result in the issuance or transfer of less than one hundred
(100) shares of Class A Common Stock.
(c) Rights as a Stockholder. A recipient of options
shall have no rights as a stockholder with respect to any shares
issuable or transferable upon exercise thereof until the date a
stock certificate is issued to him for such shares. Except as
otherwise expressly provided in the Plan, no adjustment shall be
made for dividends or other rights for which the record date is
prior to the date such stock certificate is issued.
(d) Non-Assignability of Options. No option shall be
assignable or transferable by the recipient except by will or by
the laws of descent and distribution. During the life of the
recipient, options shall be exercisable only by him.
(e) Effect of Termination of Employment or Death. No
option shall be exercisable after termination of employment with
the Company or any parent or subsidiary unless such termination
of employment occurs by reason of retirement with the consent of
the Company or death. Options shall not be affected by any
change of employment as long as the recipient continues to be
employed by either the Company or any subsidiary. In the event
of the retirement of an optionee with the consent of the Company,
unexercised options (or portions thereof) shall expire on the
date of retirement, except for unexercised options (or portions
thereof) that were exercisable on the date of retirement, which
shall expire unless exercised within a period of three (3) months
after the date of retirement. In the event of the death of an
optionee within the three-month period following termination of
employment by reason of retirement with the consent of the
Company, unexercised options (or portions thereof) that were
<PAGE>
exercisable on the date of retirement shall be exercisable by his
personal representatives, heirs or legatees at any time prior to
the expiration of one (1) year from the date of his death. In
the event of the death of an optionee while an employee of the
Company or any subsidiary of the Company, unexercised options (or
portions thereof), whether or not they were exercisable on the
date of death, shall be exercisable by his personal
representatives, heirs or legatees at any time prior to the
expiration of one (1) year from the date of his death. In no
event, however, shall an option be exercisable after the
expiration of ten (10) years from the date the option was granted
(five years in the case of Incentive Stock Options granted to a
10% Stockholder). Nothing in the Plan or in any option granted
under it shall confer any right to continue in the employ of the
Company or any subsidiary or interfere in any way with the right
of the Company or any subsidiary to terminate employment at any
time.
(f) Leave of Absence. In the case of a recipient on
an approved leave of absence, the Committee may, if it determines
that to do so would be in the best interests of the Company,
provide in a specific case for continuation of options during
such leave of absence, such continuation to be on such terms and
conditions as the Committee determines to be appropriate, except
that in no event shall an option be exercisable after the
expiration of ten (10) years from date such option was granted.
(g) Maximum Option Grants. Notwithstanding anything
to the contrary, but except as provided in subparagraph 7(h)
hereof, in no event shall the maximum aggregate number of shares
granted hereunder to any employee exceed 50,000 shares during the
term of the Plan.
(h) Share Adjustments. In the event there is any
change in the Company's shares of Class A Common Stock resulting
from stock splits, stock dividends, combinations or exchanges of
shares, or other similar capital adjustments, equitable
proportionate adjustments shall be made by the Committee in
(1) the number of shares available for option under the Plan,
(2) the number of shares subject to options granted under the
Plan, and (3) the option price of optioned shares.
(i) Reorganization, Merger or Consolidation. In the
event of the execution of an agreement of reorganization, merger
or consolidation of the Company with one or more corporations as
a result of which the Company is not to be the surviving
corporation (whether or not the Company shall be dissolved or
liquidated) or the execution of an agreement of sale or transfer
of all or substantially all of the assets or stock of the
Company, then, with respect to each optionee, all options which
at the time of such event were granted at least one year prior
thereto shall immediately become exercisable in full, unless such
agreement provides that the successor or transferee corporation
<PAGE>
shall continue the Plan and assume all obligations under the Plan
in a manner consistent with Section 424(a) of the Code, or any
successor section thereto. If the successor or transferee
corporation does not obligate itself to continue the Plan as
provided above, the Plan and the unexercised portions of all
stock options granted pursuant to the Plan shall terminate as of
the effective date of any such transaction. If practicable, the
Company shall give each optionee notice of the execution of the
agreement which has caused options to become immediately
exercisable and thirty days prior notice of the effective date of
any possible transaction which would cause the options to
terminate.
(j) General Restrictions. Each option granted under
the Plan shall be subject to the requirement that, if at any time
the Board of Directors shall determine, in its discretion, that
the listing, registration, or qualification of the shares
issuable or transferable upon exercise thereof upon any
securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body is
necessary or desirable as a condition of, or in connection with,
the granting of such option or the payment of cash or the issue,
transfer or purchase of shares thereunder, such option may not be
exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Board of
Directors.
The aggregate fair market value (hereinafter
defined) of shares of stock of the Company with respect to which
Incentive Stock Options may become exercisable for the first time
by an individual (under all plans of the Company and any present
or future parent or subsidiary) during any calendar years shall
not exceed $100,000. The fair market value shall be determined
at the time of grant. Fair market value per share as of a
particular date shall be the last sales price of the subject
stock of the Company on the New York Stock Exchange.
The Board of Directors or the Committee may, in
connection with the granting of each option, require the
individual to whom the option is to be granted to enter into an
agreement with the Company stating that, as a condition precedent
to each exercise of the option in whole or in part, he shall, if
then required by the Company, represent to the Company in writing
that such exercise is for investment only and not with a view to
distribution, and also setting forth such other terms and
conditions as the Board of Directors or the Committee may
prescribe.
<PAGE>
8. Amendment, Modification and Termination of the Plan
---------------------------------------------------
The Board of Directors may at any time terminate or
amend the Plan in any respect; provided, however, that no such
action, without approval of the stockholders, may (a) increase
the total amount of stock which may be sold under the Plan,
except as contemplated in subparagraph 7(h) hereof, (b) change
the manner of determining the option price, (c) withdraw the
administration of the Plan from the Committee, (d) permit any
person while a member of the Committee to be eligible to receive
an option under the Plan, or (e) increase the aggregate options
under the Plan that may be granted to any one employee; and
provided further, that no amendment, modification or termination
of the Plan shall in any manner adversely affect the rights of
any optionee or transferee of any option theretofore granted
under the Plan without the consent of such optionee or
transferee. The foregoing authority of the Board of Directors
shall include specific authority to amend the Plan in any respect
to satisfy the requirements of Section 422 of the Code and/or
Federal Regulations promulgated thereunder as to the
qualification and/or continued qualification of stock options
granted hereunder which are intended to qualify as "Incentive
Stock Options".
9. Effective Date of Plan
----------------------
The effective date of the Plan shall be February 26,
1998, subject however, to approval of the Plan by a majority of
votes cast at the annual meeting of the stockholders of the
Company held in 1998, provided that the total vote cast
represents over fifty percent (50%) in interest of all stock of
the Company entitled to vote. Subject to the express provisions
of the Plan, options may be granted under the Plan at any time
and from time to time after the adoption of the Plan by the Board
of Directors on February 26, 1998 and prior to the termination of
the Plan; provided, however, that in the event that the Plan is
not approved by stockholders of the Company as aforesaid, the
Plan and all options granted thereunder shall be and become null
and void.
<PAGE>
Exhibit 10.3
SEQUA CORPORATION
Management Incentive Bonus Program
for
Corporate Executive Officers
(Revised for 1998)
<PAGE>
SEQUA CORPORATION
MANAGEMENT INCENTIVE BONUS PROGRAM
FOR CORPORATE EXECUTIVE OFFICERS
I. GENERAL OVERVIEW
----------------
The purpose of implementing Sequa Corporation's
Management Incentive Bonus Program for Corporate Executive Officers
(hereinafter, "MIBP") is to improve the Company's performance
through the efforts of its Corporate Executive Officers responsible
for the direction of its operating results.
A specific financial goal, the attainment of budgeted
basic earnings per share from continuing operations, before
extraordinary items ("EPS"), will be established at the beginning
of each plan year and the Corporate Executive Officers will be
measured exclusively on achievement of that financial goal.
Notwithstanding the foregoing, the requirement of achievement of a
specific level of EPS before any bonus shall be payable to a
Corporate Executive Officer shall apply only with respect to one-
third of the bonus that may be earned by each of the
President/Chief Operating Officer and the Senior Vice President/Gas
Turbine Operations; the remaining two-thirds of their respective
bonuses shall be determined solely with reference to attainment of
the stated financial goals of those operations of the Company for
which each is responsible (which goals shall also be established at
<PAGE>
the beginning of each plan year). Corporate Executive Officers'
bonuses shall be certified by the Compensation Committee of the
Board of Directors after completion of the fiscal year provided
that the required goals have been met.
II. PARTICIPANTS IN THE MIBP
------------------------
The participants in the Corporate Executive Officer MIBP
shall be the Chief Executive Officer, the President/Chief Operating
Officer, the Senior Executive Vice President and General Counsel,
the Senior Vice President/Gas Turbine Operations and the Executive
Vice President/Finance and Administration and such other senior
corporate officers of the Company as the Board of Directors shall
designate from time to time.
III. TIME OF PARTICIPATION; FORFEITURE OF BONUS AWARD
------------------------------------------------
1. In order to participate in the MIBP for a given
year, a participant must be in an eligible position
at the end of that plan year.
2. Any employee promoted or hired to a position
included in the MIBP during a plan year will be
eligible to participate in the bonus program on a
pro-rated basis for that plan year.
3. The plan year is the calendar year.
4. Death, disability, retirement, voluntary
resignation or termination of employment by the
Company for any reason, SUBSEQUENT to the end of a
<PAGE>
plan year (but prior to payout of bonus awards),
shall not affect the eligibility of a participant
(or his estate) for a bonus award under this MIBP
if all other conditions have been met.
5. Death, disability, retirement or termination of
employment by the Company other than for cause,
PRIOR to the end of a plan year, shall require
review of the specific case by the Compensation
Committee of the Board of Directors to determine
whether a bonus award is appropriate for a
participant under this MIBP for such year.
6. Notwithstanding anything to the contrary set forth
in this plan, a participant shall not be eligible
to receive any bonus award (or portion thereof) if,
prior to the end of a plan year: (a) he voluntarily
resigns from the Company, or (b) his employment is
terminated for cause by the Company.
7. Any exception to the policies set forth in this
Section III must be approved by the Compensation
Committee of the Board of Directors.
IV. DETERMINATION OF FINANCIAL GOALS FOR COMPANY AND
------------------------------------------------
OPERATIONS
----------
A. Company Financial Goal
----------------------
1. The Company financial goal for this MIBP shall be
attainment of budgeted basic earnings per share
<PAGE>
from continuing operations, before extraordinary
items (hereinafter, "EPS").
2. The amount of the budgeted EPS shall be set during
the first quarter of each year by the Executive
Management Committee of the Company and shall be
approved by the Compensation Committee of the Board
of Directors.
3. The EPS attained shall be determined based upon the
unaudited financial statements of the Company
(which shall contain all adjustments necessary to
fairly present the Company's results for the year
then ended).
4. The determination of "Minimum", "Par" and
"Outstanding" results for purposes of the Company's
financial performance respecting bonus awards
payable under this MIBP shall be based upon
attainment of EPS as approved by the Compensation
Committee of the Board of Directors for each plan
year. "Minimum" shall mean attainment of 85% of
budgeted EPS; "Par" shall mean attainment of 100%
of budgeted EPS; and "Outstanding" shall mean
attainment of 115% of budgeted EPS. Numbers shall
be interpolated between categories on a straight
line arithmetic basis.
5. The foregoing percentage levels may be made more
restrictive in any year by the Compensation
<PAGE>
Committee of the Board of Directors, but may not be
made less restrictive without shareholder approval
thereof. The percentages applicable to any plan
year shall be set forth on an Exhibit A, annexed
hereto and made a part hereof.
B. Financial Goals of Operations
-----------------------------
1. Notwithstanding anything to the contrary in this
MIBP, the bonuses for which the President/Chief
Operating Officer and the Senior Vice President/Gas
Turbine Operations are eligible shall be
determined, as to one-third thereof, by reference
to the level of EPS attained pursuant to the terms
of this MIBP, and, as to the other two-thirds
thereof, by reference to attainment of stated
financial goals (i.e., budgeted operating income
and return on net assets, also at minimum, par and
outstanding levels) for the respective operations
of the Company under their direction.
2. Accordingly, it is possible for the President/Chief
Operating Officer and for the Senior Vice
President/Gas Turbine Operations to earn a bonus
with respect to one portion of their total bonus
award eligibility but not with respect to the other
portion.
3. The financial goals of their respective operations
<PAGE>
shall be set during the first quarter of each year
by the Executive Management Committee and shall be
approved by the Compensation Committee of the Board
of Directors in accordance with the terms and
conditions of the separate bonus plans applicable
to their respective operating units.
V. CALCULATION OF BONUS AWARDS
---------------------------
1. Following the close of the plan year, the Executive
Vice President/Finance and Administration shall
report to the Executive Management Committee of the
Company on the EPS attained, as well as the
operating income and RONA results for the groups
reporting to the President/Chief Operating Officer
and the Senior Vice President/Gas Turbine
Operations, respectively. He shall also report on
the bonus awards for each participant under this
MIBP, calculated in accordance with this plan.
2. Eligible Participants in this MIBP shall be subject
to having satisfied the criteria of Section III
hereof.
<PAGE>
3. The calculation of the Company financial
performance rating shall be applied to bonus awards
payable to eligible participants in this MIBP
according to the formula set forth in Section VI
hereof.
4. The Company's EPS performance shall comprise 100%
of the bonus awards for which the Chairman/Chief
Executive Officer, Senior Executive Vice
President/General Counsel and Executive Vice
President/Finance and Administration shall be
eligible, but only 33.3% of the bonus awards for
which the President/Chief Operating Officer and the
Senior Vice President/Gas Turbine Operations shall
be eligible.
VI. LEVELS OF BONUS AWARDS
----------------------
There are three bonus levels available under this MIBP to
Corporate Executive Officers: the "Minimum" bonus level
(attainment of 85% of budgeted EPS), "Par" bonus level
(attainment of 100% of budgeted EPS) and "Outstanding" bonus
level (attainment of 115% of budgeted EPS). The percentages
of base salary payable as bonuses to Corporate Executive
Officers under this MIBP are determined by the level of
budgeted EPS attained by the Company (as set forth in the
following chart):
<PAGE>
<TABLE>
Corporate Executive Officers Chart -- Potential Payout Levels
-------------------------------------------------------------
<CAPTION>
PARTICIPANTS BELOW 85% MINIMUM COMPANY PAR COMPANY OUTSTANDING
OF BUDGETED FINANCIAL FINANCIAL COMPANY
EPS PERFORMANCE PERFORMANCE FINANCIAL
(85% OF (100% OF PERFORMANCE
BUDGETED EPS) BUDGETED EPS) (115% OF
BUDGETED EPS)
<S> <C> <C> <C> <C>
Chairman/ Chief 0 32.5% 65.0% 97.5%
Executive Officer
President/Chief 0 30.0% 60.0% 90.0%
Operating Officer*
Senior Executive 0 30.0% 60.0% 90.0%
Vice
President/General
Counsel
Senior Vice 0 30.0% 60.0% 90.0%
President/Gas
Turbine Operations*
Executive Vice 0 30.0% 60.0% 90.0%
President/Finance
and Administration
<FN>
Note: Numbers are to be interpolated between categories on a
straight line basis (i.e., if the results fall midway
between minimum and par, bonus percentage equal to the
arithmetic midpoint will be awarded).
* These percentages apply only with respect to 33.3% of the aggregate
bonuses available to the President/Chief Operating Officer and the Senior
Vice President/Gas Turbine Operations; the other 66.6% is determined by
the terms and conditions of the separate bonus plans applicable to the
respective operations under their direction.
</TABLE>
VII. APPROVAL OF BONUS AWARDS
------------------------
<PAGE>
The Compensation Committee of the Board of Directors of
the Company shall review and certify to the Board of Directors, for
its approval, proposed bonus awards for all Corporate Executive
Officers.
VIII. PAYOUT OF BONUS AWARDS
----------------------
Bonus awards for performance in the previous plan year
shall be paid after the Company's financial statements have been
finalized and the Board of Directors has concluded its
determinations on the subject.
IX. AMENDMENTS
----------
This plan may not be substantively amended except with
the approval of a majority of the shareholders of the Company.
Notwithstanding the foregoing, this plan may be amended so as to be
more restrictive (but not less restrictive), or simply as to form,
by the Board of Directors of the Company.
X. NO CREATION OF RIGHTS
----------------------
This plan shall neither create any right to a bonus
payment or future participation therein for any employee, nor limit
the right of the Company to modify, amend or rescind this plan
(subject to Section IX above) for any subsequent plan year. Nor
shall this plan be construed as creating any right to employment or
continued employment on the part of any person.
<PAGE>
Exhibit A
Notwithstanding anything to the contrary set forth within the text
of the foregoing Corporate Executive Officers' MIBP, the
percentages of budgeted EPS applicable to the "Minimum", "Par" and
"Outstanding" performance levels shall be as follows: 1.
For Plan Year _________ Budgeted EPS_____________
Minimum Bonus Level = __________% of Budgeted EPS
Par Performance Level = __________% of Budgeted EPS
Outstanding Performance Level = _________% of Budgeted EPS
_________________________
1. The percentage of budgeted EPS that must be attained in each
bonus category may be set by the Board of Directors of the Company
each year, provided that it may never be set below the percentages
of 85% (Minimum), 100% (Par) and 115% (Outstanding) that were
originally approved by shareholders at the 1994 Annual Meeting of
Stockholders. However, these percentages may be changed to impose
more restrictive criteria under the Plan without obtaining
shareholder approval of such change.
<PAGE>
Exhibit A
Notwithstanding anything to the contrary set forth within the text
of the foregoing Corporate Executive Officers' MIBP, the
percentages of budgeted EPS applicable to the "Minimum", "Par" and
"Outstanding" performance levels shall be as follows: 1.
For Plan Year: 1998 Budgeted EPS: $2.00
Minimum Bonus Level = 85% of Budgeted EPS
Par Performance Level = 100% of Budgeted EPS
Outstanding Performance Level = 125% of Budgeted EPS
_________________________
1. The percentage of budgeted EPS that must be attained in each
bonus category may be set by the Board of Directors of the Company
each year, provided that it may never be set below the percentages
of 85% (Minimum), 100% (Par) and 115% (Outstanding) that were
originally approved by shareholders at the 1994 Annual Meeting of
Stockholders. However, these percentages may be changed to impose
more restrictive criteria under the Plan without obtaining
shareholder approval of such change.
<PAGE>
Sequa Corporation
Management Incentive Bonus Program
for
Corporate Non-Executive Officers
and
Corporate Staff
(Revised for 1998)
<PAGE>
SEQUA CORPORATION
MANAGEMENT INCENTIVE BONUS PROGRAM
FOR CORPORATE NON-EXECUTIVE OFFICERS
AND CORPORATE STAFF
I. GENERAL OVERVIEW
----------------
The purpose of implementing Sequa Corporation's
Management Incentive Bonus Program for Corporate Non-Executive
Officers and Corporate Staff (hereinafter, "MIBP") is to improve
the Company's performance through the efforts of key executives and
management personnel who are in a position to significantly
contribute to its operating results.
Specific financial and personal performance goals will be
established at the beginning of each plan year for all MIBP
participants herein. The MIBP is designed to provide substantial
rewards for participants who accomplish or exceed targeted personal
performance goals at the end of the plan year (provided that the
Company achieves positive earnings per share).
II. PARTICIPANTS IN THE MIBP
------------------------
1. Corporate Non-Executive Officers: These include
all corporate officers and assistant corporate
officers who are not Corporate Executive Officers
(as defined in the Company's Management Incentive
Bonus Program for Corporate Executive Officers).
2. A-Pool (Director) and B-Pool (Manager and
Professional) Participants: as established by the
<PAGE>
Corporate Non-Executive Officers, in accordance
with the following guidelines:
(a) A-Pool participation shall consist of:
* First level managers reporting directly
to a Corporate Non-Executive Officer.
* Certain first-level managers may be
excluded if the reporting relationship is
due to special circumstances.
* Certain second-level managers may be
included if the responsibilities of
their position warrant participation
at the A-Pool level.
(b) B-Pool participation shall consist of:
* Select Manager, Professional and other
key employees who are in a position to
contribute to Company goals through
sustained performance.
(c) During the first quarter of each year, the
recommended lists of participants for that
year are to be submitted by the respective
Corporate Non-Executive Officers to the
appropriate Corporate Executive Officer and
the Vice President, Human Resources for their
approval.
<PAGE>
3. Any organizational changes during the year which
impact on the level of bonus participation will be
reviewed and approved in writing by the Chief
Executive Officer, President and the Vice
President, Human Resources.
III. TIME OF PARTICIPATION; FORFEITURE OF BONUS AWARD
------------------------------------------------
1. In order to participate in the MIBP for a given
year, a participant must be in an eligible position
at the end of that plan year.
2. Any employee promoted or hired to a position
included in the MIBP during a plan year will be
eligible to participate in the bonus program on a
pro-rated basis for that plan year.
3. The plan year is the calendar year.
4. Death, disability, retirement, voluntary
resignation or termination of employment by the
Company for any reason, SUBSEQUENT to the end of a
plan year (but prior to payout of bonus awards),
shall not affect the eligibility of a participant
(or his estate) for a bonus award under this MIBP
if all other conditions have been met.
5. Death, disability, retirement or termination of
employment by the Company other than for cause,
PRIOR to the end of a plan year, shall require
<PAGE>
review of the specific case by the Chief Executive
Officer, the President and the Vice President,
Human Resources to determine whether a bonus award
is appropriate for a participant under this MIBP
for such year.
6. Notwithstanding anything to the contrary set forth
in this plan, a participant shall not be eligible
to receive any bonus award (or portion thereof) if,
prior to the end of a plan year: (a) he voluntarily
resigns from the Company, or (b) his employment is
terminated for cause by the Company.
7. Any exception to the policies set forth in this
Section III must be approved in writing by the
Chief Executive Officer, President and the Vice
President, Human Resources.
IV. DETERMINATION OF COMPANY FINANCIAL AND PERSONAL
-----------------------------------------------
PERFORMANCE GOALS
-----------------
A. Company Financial Goal
----------------------
1. The Company financial goal for this MIBP shall be
attainment of budgeted basic earnings per share
from continuing operations, before extraordinary
items (hereinafter, "EPS").
<PAGE>
2. The amount of budgeted EPS shall be set during the
first quarter of each year by the Executive
Management Committee of the Company and shall be
approved by the Compensation Committee of the Board
of Directors.
3. The EPS attained shall be determined based upon the
unaudited financial statements of the Company
(which shall contain all adjustments necessary to
fairly present the Company's results for the year
then ended).
4. The determination of "Minimum", "Par" and
"Outstanding" results for purposes of the
Company's financial performance portion of bonus
awards payable under this MIBP shall be based upon
attainment of EPS as approved by the Compensation
Committee of the Board of Directors for each plan
year. "Minimum" shall mean attainment of 85% of
budgeted EPS; "Par" shall mean attainment of 100%
of budgeted EPS; and "Outstanding" shall mean
attainment of 115% of budgeted EPS. Numbers shall
be interpolated between categories on a straight
line arithmetic basis.
<PAGE>
B. Personal Performance Goals
--------------------------
1. Personal performance goals for Corporate Non-
Executive Officers shall be agreed upon with the
appropriate Corporate Executive Officer.
2. Personal performance goals for A-Pool and B-Pool
participants in this MIBP shall be agreed upon with
the appropriate Corporate Non-Executive Officer.
3. Personal performance goals of all participants in
this MIBP shall be submitted in writing to, and
approved by, the Vice President, Human Resources by
March 31 of each year and may be reviewed by the
Chief Executive Officer or the President.
V. CALCULATION OF BONUS AWARDS
---------------------------
A. Company Financial Portion
-------------------------
1. Following the close of the plan year, the Executive
Vice President, Finance and Administration, shall
report to the Chief Executive Officer and the
President the calculation of EPS attained for that
plan year. He shall thereafter calculate the
financial portion of the bonus award available for
each level of participation under this MIBP based
on the Company's EPS.
<PAGE>
2. Eligible participants in this MIBP shall be subject
to having satisfied the criteria of Section III
hereof and the personal performance requirements as
set forth in Section V(B) hereof.
3. The calculation of the Company financial
performance rating shall be applied to bonus awards
payable to eligible participants in this MIBP
according to the formula set forth in Section VI
hereof.
4. Notwithstanding anything to the contrary in this
plan, in no event shall any bonus award (or portion
thereof) be payable under this MIBP to any
participant if the Company shall not have achieved
EPS of at least $.01 for the plan year at issue.
B. Personal Performance Portion
----------------------------
1. Following the close of the plan year, personal
performance ratings shall be determined by the
appropriate Corporate Executive Officers for their
respective direct reports. Corporate Non-Executive
Officers (in coordination with the appropriate
Corporate Executive Officers) will determine
personal performance ratings for their participant
reports.
<PAGE>
2. The above-described personal performance rating
shall be used to calculate the personal performance
portion of bonus awards that may be payable to
eligible participants in this MIBP, in accordance
with the provisions of this plan (subject to their
having satisfied the criteria of Section III hereof
and the Company having attained EPS of at least
$.01).
3. Notwithstanding anything to the contrary in this
plan, in no event shall any bonus award (or portion
thereof) be payable under this MIBP to any
otherwise eligible participant if he fails to
receive the minimum personal performance rating as
set forth in Section VI(A) hereof, unless Section
V(B)4 below shall be applicable.
4. Notwithstanding anything to the contrary in this
plan, in those instances where significant events
beyond the control of the participant impair his
ability to achieve his personal performance goals,
the Chief Executive Officer, President and Vice
President, Human Resources may use their judgment
regarding the amount of bonus to be awarded for
that portion of the plan. Examples of such events
could include: acquisitions, divestitures, natural
catastrophes and illness.
<PAGE>
5. In the event of the failure of a participant in
this MIBP to achieve the minimum required level of
personal performance points for other legitimate
reasons, the Chief Executive Officer, President and
Vice President, Human Resources retain discretion
to grant compensation in lieu of a bonus, outside
the parameters of this plan.
VI. MINIMUM AND MAXIMUM LEVELS OF BONUS AWARDS
------------------------------------------
A. Minimum and Maximum Levels for Personal Performance
---------------------------------------------------
1. The minimum thresholds of personal performance
points required to be earned under this plan are:
6.25 points for Corporate Non-Executive
Officers
7.5 points for A-Pool Participants
10.0 points for B-Pool Participants
The foregoing respective minimum thresholds of
personal performance points must be achieved before
any bonus award shall be payable to a participant
in this MIBP, unless Section V(B)4 above shall be
applicable.
<PAGE>
2. The maximum levels of personal performance points
that may be earned by any participant in this MIBP
are:
18.75 points for Corporate Non-Executive
Officers
22.5 points for A-Pool Participants
15.0 points for B-Pool Participants
The maximum level of personal performance points
that may be achieved shall be subject to and
limited by the same relationship that actual
financial results attained bear to budgeted
financial performance in any given year. For
Corporate Non-Executive Officers, for example, if
Company financial results fall halfway between
"par" and "outstanding" (i.e., 46.875 Company
financial performance points), the maximum personal
performance points that may be awarded are likewise
limited to those available halfway between "par"
and "outstanding" (i.e., 15.625 personal
performance points).
3. The following formula is to be used to calculate
the ceiling for personal performance points awarded
as set forth in Section VI(A)2 above:
<PAGE>
Actual Company Maximum Personal Ceiling on
Financial Perform- Performance Points Personal
ance Points Attained Available Performance
-------------------- X (always 18.75 for = Points that
Maximum Company Corporate Non- may be Awarded
Financial Performance Executive Officers)
Points Available
(always 56.25 for Corporate
Non-Executive Officers)
4. Personal performance points are raw scores and not
percentages. Accordingly, a Corporate Non-
Executive Officer does not have to earn 18.75
personal performance points in order to be awarded
the maximum of 12.5 personal performance points in
a year in which the Company achieves "par"
financial results; any number of personal
performance points that he earns between 12.5 and
18.75 will result in his receiving12.5 points in
the par category. Conversely, even if a Corporate
Non-Executive Officer achieves a perfect score of
18.75 personal performance points, the maximum
personal performance amount for which he is
eligible shall be limited by the financial
performance of the Company. Thus, if the Company
achieves only the "par" financial performance
category, a Corporate Non-Executive Officer who has
achieved a perfect personal performance rating of
18.75 cannot be awarded more than the maximum
number of personal performance points permissible
in the "par" category (12.5 points).
<PAGE>
5. In the event that the Company achieves EPS of at
least $.01, but fails to attain minimum financial
performance, MIBP participants will be eligible for
limited bonus awards based solely upon personal
performance as set forth in the charts shown in
Sections VI(D) and VI(E) hereof, unrestricted (in
this instance alone) by Company financial
performance.
6. For B-Pool participants, their entire bonus award
shall be based upon personal performance (although
no bonus award shall be payable to them if the
Company shall not attain EPS of at least $.01).
Accordingly, the bonus award for B-Pool
participants shall not be limited by the financial
performance category attained by the Company;
however, their total bonus award can never exceed
15% of their base salary.
B. Minimum and Maximum Levels for Company Financial
------------------------------------------------
Performance
-----------
1. The minimum financial level that must be attained
by the Company before any bonus awards may be made
under this plan is an EPS of at least $.01.
2. The maximum number of Company financial points that
may be awarded under this plan are 56.25 points, in
the case of Corporate Non-Executive Officers, and
22.5 points, in the case of A-Pool participants.
<PAGE>
C. Maximum Aggregate Bonus Awards
------------------------------
The maximum aggregate bonus awards (combined
Company financial and personal performance
portions) payable under this plan are 75% of base
salary for Corporate Non-Executive Officers, 45% of
base salary for A-Pool participants, and 15% of
base salary for B-Pool participants (whose entire
bonus award is based upon personal performance).
<PAGE>
<TABLE>
D. Corporate Non-Executive Officers Chart -- Example of Potential Payout
Levels
<CAPTION>
EPS OF $.01 MINIMUM PAR FINANCIAL OUTSTANDING
UP TO 85% OF FINANCIAL PERFORMANCE FINANCIAL
BUDGETED EPS PERFORMANCE (100% OF PERFORMANCE
(85% OF BUDGETED BUDGETED EPS) (115% OF
EPS) BUDGETED EPS)
<S> <C> <C> <C> <C>
Company 0 18.75 points 37.5 points 56.25 points
Financial
Performance
Points
Personal From 6.25 to 6.25 points From 6.25 From 6.25
Performance 18.75 points points to points to
Points 12.5 points 18.75 points
Total 6.25% to 25.0% of Base Up to 50.0% Up to 75.0%
Percentage 18.75% of Salary of Base Salary of Base Salary
of Base Base Salary
Salary
Payable as
Bonus
(Company
Financial
Performance
plus Personal
Performance)
<FN>
NOTE: The above chart assumes that the MIBP participant has achieved
the required minimum personal performance rating of 6.25 points,
without which no bonus award under this plan shall be payable. Each
point is equal to one percentage point of base salary. Numbers are
to be interpolated between categories on a straight line basis.
Points which fall between two categories are calculated on a straight
arithmetic basis (i.e., if the financial results fall midway between
minimum and par, 28.125 financial points will be awarded; likewise,
in that situation, no more than 9.375 personal points can be awarded,
regardless of actual performance).
</TABLE>
<PAGE>
<TABLE>
E. A-Pool Participants Chart -- Examples of Potential Payout Levels
<CAPTION>
EPS OF $.01 MINIMUM PAR FINANCIAL OUTSTANDING
UP TO 85% OF FINANCIAL PERFORMANCE FINANCIAL
BUDGETED EPS PERFORMANCE (100% OF PERFORMANCE
(85% OF BUDGETED BUDGETED EPS) (115% OF
EPS) BUDGETED EPS)
<S> <C> <C> <C> <C>
Company 0 7.5 points 15.0 points 22.5 points
Financial
Performance
Points
Personal From 7.5 7.5 points From 7.5 points From 7.5
Performance points to to 15.0 points points to
Points 11.25 points 22.5 points
Total 7.5% to 15.0% of Base Up to 50.0% Up to 45.0%
Percentage 11.25% of Salary of Base Salary of Base Salary
of Base Base Salary
Salary
Payable as
Bonus
(Company
Financial
Performance
plus Personal
Performance)
<FN>
NOTE: This chart assumes that the MIBP participant has achieved the
required minimum personal performance rating of 7.5 points, without
which no bonus award under this plan shall be payable. Each point
is equal to one percentage point of base salary. Numbers are to be
interpolated between categories on a straight line basis. Points
which fall between two categories are calculated on a straight
arithmetic basis (i.e., if the financial results fall midway between
minimum and par, 11.25 financial points will be awarded; likewise, in
that situation, no more than 11.25 personal points can be awarded,
regardless of actual performance).
</TABLE>
<PAGE>
VII. APPROVAL OF BONUS AWARDS
1. The Compensation Committee of the Board of Directors of the
Company shall review and recommend to the Board of Directors
proposed bonus awards for all Corporate
Non-Executive Officers.
2. The Board of Directors of the Company shall approve bonus
awards to all Corporate Non-Executive Officers.
3. Bonus awards for A-Pool and B-Pool level participants shall be
approved by the appropriate Corporate Non-Executive Officer
and Corporate Executive Officer to whom such participants
report, together with the Vice President, Human Resources.
VIII. PAYOUT OF BONUS AWARDS
Bonus awards for performance in the previous plan year shall be paid
after the Company's financial statements have been finalized and the Board of
Directors has concluded its determinations on the subject.
IX. AMENDMENTS
This plan may not be substantively amended except by the
Compensation Committee of the Board of Directors of the Company.
X. NO CREATION OF RIGHTS
This plan shall neither create any right to a bonus
payment or future participation therein for any employee, nor limit the right
of the Company to modify, amend
<PAGE>
or rescind this plan for any subsequent plan year. Nor shall this plan be
construed as creating any right to employment or continued employment on the
part of any person.
Notwithstanding anything to the contrary set forth herein, there shall be no
entitlement on the part of any employee to a bonus and the final decision as
to whether to pay a bonus to any
employee, or the amount of any bonus to be paid, shall be discretionary on the
part of the Board of Directors of the Company (with respect to Corporate
Non-Executive Officers) or the Executive Management Committee of the Company
(with respect to A-Pool and B-Pool level
participants).
<PAGE>
<TABLE>
Exhibit 11.1
SEQUA CORPORATION & SUBSIDIARIES
COMPUTATIONS OF BASIC AND DILUTED EARNINGS PER SHARE
FOR THE YEARS ENDED DECEMBER 31,
(Amounts in thousands, except per share data)
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
BASIC
Earnings
Income before extraordinary item $19,627 $ 9,556 $ 8,779
Preferred dividends (3,051) (3,108) (3,165)
Income applicable to common stock 16,576 6,448 5,614
Extraordinary loss - (369) -
Net income applicable to common stock $16,576 $ 6,079 $ 5,614
Shares
Weighted average common shares outstanding 9,967 9,880 9,867
Basic earnings per share
Income before extraordinary item $ 1.66 $ 0.65 $ 0.57
Extraordinary loss - (.04) -
Net income $ 1.66 $ 0.61 $ 0.57
DILUTED *
Earnings
Income before extraordinary item $19,627 $ 9,556 $ 8,779
Preferred dividends (3,051) (3,108) (3,165)
Income applicable to common stock 16,576 6,448 5,614
Extraordinary loss - (369) -
Net income applicable to common stock $16,576 $ 6,079 $ 5,614
Shares
Weighted average common shares outstanding 9,967 9,880 9,867
Stock options, with a dilutive effect 47 41 -
Adjusted weighted average common
shares outstanding 10,014 9,921 9,867
Diluted earnings per share
Income before extraordinary item $ 1.66 $ 0.65 $ 0.57
Extraordinary loss - (0.04) -
Net income $ 1.66 $ 0.61 $ 0.57
<FN>
* The conversion of the Company's preferred stock is antidilutive in all
periods presented when the preferred stock dividends are added back to
income applicable to common stock.
</TABLE>
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF REGISTRANT
The companies listed below are the majority-owned subsidiaries of
the registrant as of December 31, 1997:
State or Other
Jurisdiction
in which
Name of Subsidiary Incorporated
Atlantic Research Corporation Delaware
Casco IMOS Italia S.R.L. Italy
Casco Products Corporation Delaware
The Centor Company Missouri
Chromalloy American Corporation Delaware
Chromalloy Castings Tampa Corporation Delaware
Chromalloy Gas Turbine Corporation Delaware
Chromalloy Gas Turbine France France
Chromalloy Heavy Industrial Turbines, Ltd. Delaware
Chromalloy Holland B.V. Netherlands
Chromalloy Israel Ltd Israel
Chromalloy Men's Apparel, Inc. Delaware
Chromalloy San Diego Corporation California
Chromalloy Thailand Ltd Thailand
Chromalloy U.K. Ltd. England
Chromalloy Wallkill Corp. New York
Chromizing, S.A. de C.V. Mexico
Jamo Matrizjen B.V. Netherlands
Malichaud et CIE S.A. France
Materiels Equipements Graphiques France
MEGTEC Systems, Inc. Delaware
Sequa Capital Corporation New York
Sequa Chemicals Corporation Delaware
Sequa Coatings Corporation Indiana
Sequa Financial Corporation New York
TurboCombustor Technology, Inc. Florida
Warwick International Group Ltd England
Other subsidiaries of the Registrant have been omitted from this
listing since, considered in the aggregate as a single
subsidiary, they would not constitute a significant subsidiary.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Annual Report on
Form 10-K, into the Company's previously filed Registration
Statement on Form S-3 (File No. 33-47552).
ARTHUR ANDERSEN LLP
New York, New York
March 20, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 93,743
<SECURITIES> 25,000
<RECEIVABLES> 328,268
<ALLOWANCES> 17,889
<INVENTORY> 246,449
<CURRENT-ASSETS> 695,843
<PP&E> 1,050,202
<DEPRECIATION> 614,722
<TOTAL-ASSETS> 1,591,675
<CURRENT-LIABILITIES> 366,728
<BONDS> 508,735
0
797
<COMMON> 10,915
<OTHER-SE> 582,682
<TOTAL-LIABILITY-AND-EQUITY> 1,591,675
<SALES> 1,595,125
<TOTAL-REVENUES> 1,595,125
<CGS> 1,285,829
<TOTAL-COSTS> 1,510,418
<OTHER-EXPENSES> (7,418)
<LOSS-PROVISION> 8,316
<INTEREST-EXPENSE> 50,298
<INCOME-PRETAX> 41,827
<INCOME-TAX> 22,200
<INCOME-CONTINUING> 19,627
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,627
<EPS-PRIMARY> 1.66
<EPS-DILUTED> 1.66
</TABLE>
